ARM Cement will cede a controlling stake to a strategic investor after it opted to offer new ordinary shares to the new partner and increased the buyout cost by Sh1.4 billion.
Previously, ARM was to get $125 million (Sh12.6 billion) cash injection and pay an undisclosed annual interest on the preference shares which were to be converted to equity in 2023.
The proposed transaction is the latest one to come from ARM that has dropped several fundraising options over the past one year as it grapples with a rising debt load that has been exacerbated by weakening of the shilling.
ARM previously sought to raise up to Sh10.7 billion through a bond and later considered issuing convertible preference shares to the institutional investor for Sh12.7 billion.
The company says the latest proposed transaction, which will see the unnamed investor emerge with the single largest stake, is expected to be concluded by June.
“The board and management of the company believe that the investment, if made, will strengthen the financial position of the company as it executes its regional growth plans,” ARM said in a notice to be published Tuesday.
The Sh14 billion capital injection is equivalent to a 48 per cent stake based on the cement manufacturer’s current market capitalisation of Sh15.2 billion, with the share price having lost 64 per cent over the past one year to trade at Sh30.7
This indicates that current shareholders could be diluted by nearly half with the investor being allotted ordinary shares.
Among those to be diluted is the family of ARM’s chief executive Pradeep Paunrana whose equity stands at about 51 per cent.
ARM says it will use $110 million (Sh11 billion) to retire debts and invest the balance in current and new cement business —a signal it will be creating new shares to accommodate the new investor.
The firm’s short-term debts jumped 35 per cent to Sh14.4 billion in the nine months ended September, raising its finance costs 3.3 times to Sh1.1 billion.
ARM also saw its unrealised foreign exchange losses increase 15.5 times to Sh2 billion, with sales rising at slower rate of seven per cent to Sh11.7 billion.
This contributed to net loss of Sh469 million in the same period, reversing the net profit of Sh1.1 billion the year before.
ARM said negotiations with the investor are ongoing, indicating that the final terms of agreement could change.
It expects the talks on the share sale deal to conclude by mid next month and the transaction to be completed in June.
The latest announcement that investor will be issued with ordinary shares in the company is a significant amendment to the earlier statement that the investor would be allotted convertible preference shares.