ARM aims to conclude sale deal with British fund by mid-September

ARM Cement expects to complete the sale of a 40 per cent stake of the company to a UK fund by mid-September after getting the final regulatory approval from the competition watchdog.

The family-owned cement maker is selling the Sh14.1 billion stake to UK-based development financier CDC.
It intends to use the funds primarily to retire expensive short-term loans and expand its operations in Kenya and Tanzania.

The Competition Authority of Kenya (CAK) has, through the latest Kenya Gazette, approved the multi-billion shilling transaction-- with shareholders approval now the last hurdle before the deal is completed.

“Following this approval, we have sent a circular to our shareholders inviting them for an extraordinary general meeting on August 25,” Pradeep Paunrana, ARM’s chief executive, told the Business Daily in an interview.

“If the shareholders approve, we expect that the transaction will be completed after another two weeks or so. We should have cash in our bank account by mid next month.”

ARM’s short term debts jumped 35 per cent to Sh14.4 billion in the nine months to September 2015, raising its finance costs 3.3 times to Sh1.1 billion.

This financing expense contributed to the firm reporting a net loss of Sh469 million in the same period, reversing the net profit of Sh1.1 billion reported the year before.To free up its balance sheet, ARM initiated a capital-raising drive, seeking funds to pay off the crippling debt.

Strategic investor

The cement maker later ditched this option and instead started the search for a strategic investor to inject $125 million (Sh12.6 billion) into the business in the form of a convertible loan in the form of preference shares.

ARM again abandoned this capital-raising route and settled on the CDC, which is owned by the UK’s Department for International Development (DfID), as an equity investor.

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“The CAK has authorized the proposed acquisition of 40.7 per cent of the ordinary shares and control of ARM Cement by CDC Africa Cement,” Wang’ombe Kariuki, the watchdog’s director-general, said in the gazette notice.

The transaction will leave the family of Mr Paunrana, with a 30 per cent stake while the balance remaining in free float.

ARM plans to use Sh7 billion of the funds to reduce its short-term debt burden, another Sh4.1 billion will go towards settling outstanding debts it has with other creditors. The balance of Sh3 billion will be used to consolidate its Tanzanian subsidiary, expand capacity in Kenya and scale up the business’ sustainability status such as reducing energy costs and lowering greenhouse gas and dust emissions.

“We are proud to back a founder-led frontrunner in East African manufacturing,” Mark Pay, CDC’s managing director for equity investments, said on April 30 when announcing the deal.

“This investment will strengthen a company making a difference to the local economy, bringing jobs and lower cost raw materials to a region traditionally dependent on imports.

CDC’s foray into the country’s cement industry comes at a time when manufactures, buoyed by the booming real estate sector, are producing above the market’s absorption, keeping prices stable.

The East African Portland Cement, Bamburi, Mombasa Cement, Savannah and National Cement are among ARM’s leading competitors in the sector.