ARM’s cement plant in Tanga, Tanzania. The cement maker will construct another Sh26 billion factory in Kitui, Kenya. Photo/FILE
What you need to know:
ARM says it could take debt to finance construction of the new plant, in addition to using its internally generated cash reserves.
ARM had retained earnings of Sh6.4 billion in December.
ARM is betting on the Kitui plant —billed as the biggest in the country— to boost its market share in the competitive regional cement market.
Cement maker ARM will break ground for its Sh26 billion ($300 million) Kitui factory in October, chief executive Pradeep Paunrana has said.
The Nairobi Securities Exchange-listed company says it could take debt to finance construction of the new plant, in addition to using its internally generated cash reserves.
Mr Paunrana said construction and raising of finances needed will go on simultaneously for the next two-and-a-half years.
“A rights issue may not be necessary. We are looking at debt and our cash generation,” said Mr Paunrana.
This means the company is likely to top up its cash reserves with credit from international lenders or local financiers who may be offered a bond by the cement manufacturer.
ARM had retained earnings of Sh6.4 billion in December.
The company in 2012 raised $50 million (Sh4.3 billion) from Lagos-based Africa Finance Corporation (AFC) through a bond that had the option of being converted into equity.
ARM has signalled its preference for repaying the debt by issuing its stock to help it preserve cash for the Kitui plant.
“Their option (to convert the bond onto equity) is already in the money but that is their decision to make,” said Mr Paunrana.
AFC had the option of converting the debt security into ARM’s shares any time during a six-year period at a fixed price of $3.20 per share (Sh280.6) before the cement firm split its stock five times early last year.
This means that the new conversion rate stands at about Sh56.1 per share, giving AFC a potential 44.3 per cent gain based on ARM’s current trading price of Sh81 a unit.
ARM is betting on the Kitui plant —billed as the biggest in the country— to boost its market share in the competitive regional cement market.
It will have the capacity to produce 8,000 tonnes of cement per day, placing it ahead of Nigeria’s Dangote Cement that is also set to build a $400 million (Sh34.8 billion) plant in Kitui to churn out 5,500 tonnes daily.
Kitui has become a favourite location for cement manufacturing due to its huge limestone deposits and proximity to the Mui basin, which has large coal reserves.
The manufacture of cement involves mixing of clinker, a key raw material, and limestone or coral rock mainly from the Coast, with pozzolana, an ash-based product mainly found in the Rift Valley.
The East African Portland Cement Company (EAPCC) is also seeking to secure limestone supplies in Kitui. The upcoming plants in Kitui are set to further expand Kenya’s cement surplus that has seen prices drop to an average all-time low of Sh650 for a 50 kilogramme bag in Nairobi.
Analysts have linked the price wars to the entry of new players such as National Cement, Savannah Cement and Mombasa Cement that are riding on lower prices to gain market share.
