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ARM banks on Sh14bn UK-owned fund injection to kick start Kitui plant

ARM Cement chief executive Pradeep Paunrana. PHOTO | SALATON NJAU
ARM Cement chief executive Pradeep Paunrana. PHOTO | SALATON NJAU 

ARM Cement is banking on the $140 million (Sh14 billion) capital injection from a British government-owned fund CDC Group to finance the setting up of a new clinker and cement plant in Kitui County.

The Nairobi bourse listed firm said the expected financial backing from the development finance institution would jumpstart work on the integrated cement factory which has been on the cards since 2014 and is estimated to cost $300 million (Sh30 billion).

Chief executive Pradeep Paunrana said finer details on the proposed 2.5 million tonnes per year Kitui plant would be divulged after shareholders’ approval of CDC’s proposed investment in return for a 40.66 per cent stake in the cement manufacturer.

ARM Cement shareholders will have a special meeting tomorrow to discuss CDC’s capital boost meant to retire expensive debt, reduce interest burden, and generate free cash flow for the loss making company.

“We plan to have this project in the next four to five years. It will be similar to the Tanga plant in terms of size,” Mr Paunrana said in an interview.

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“I will give more details after the extra ordinary general meeting,” he said. He declined to disclose whether ARM had completed land acquisition or acquired a mining licence for the Kitui project.

Mr Paunrana also decline to reveal the debt to equity ratio for the planned multibillion shilling project.

The cementmaker, currently majority owned by the Paunrana family, was forced to seek a strategic investor after borrowings jumped 50 per cent to Sh24.3 billion as at December 2015 from Sh16.2 billion in 2013 — resulting in high finance costs that drove the company to losses.

ARM Cement, which also blends fertiliser, saw finance costs surge twelvefold to Sh2.3 billion in the year ended December 2015 on the back of a debt binge.

This financing expense contributed to ARM Cement reporting a net loss of Sh2.8 billion in the period under review, reversing the net profit of Sh1.4 billion reported in 2014.

ARM last year completed a clinker plant in Tanga, Tanzania, with a capacity of 1.2 million tonnes per annum. The company already owned a grinding factory in the seaport city.

The firm’s expansion plans in limestone rich Kitui County, located about 180km east of Nairobi, will see it take on Nigerian billionaire Aliko Dangote who has announced plans to set up a cement factory in the same area.

Mr Dangote has already has secured a licence to prospect for limestone in Kitui.

London-based CDC Group’s entry into ARM Cement comes at a time when Kenya’s cement industry is facing margin pressures as a result of increased competition from new players such as Savannah Cement, Mombasa Cement, and National Cement – resulting in cement prices remaining flat for more than a decade.

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