Lenders and unsecured creditors of the collapsed ARM Cement lost Sh11.5 billion during the distribution of proceeds after the liquidation of the listed firm, filings by its administrators PricewaterhouseCoopers (PwC) show.
Unsecured creditors such as Sayani Investments, which laid an aggregate claim of Sh9 billion on the firm, took the biggest haircut after only recovering 6.2 percent of this amount.
Secured lenders — largely banks such as Absa Bank Kenya and UBA Bank Kenya — were paid Sh4.98 billion out of their claims totalling Sh8.03 billion.
Preferential creditors, which have priority in being paid in bankruptcies, were compensated in full at Sh326.6 million.
The cement firm’s debacle demonstrates the risks of sitting at the bottom of the payment waterfall where a creditor is only compensated after claims from others higher up in the hierarchy have been settled.
The biggest unsecured lenders included holders of ARM’s commercial paper and bonds worth Sh1.82 billion, private lender Aerous at Sh1.55 billion and Stanbic Bank at Sh920.1 million. The cement maker’s former employees were also owed salary arrears worth Sh30 million.
ARM’s financial difficulties saw it placed in administration in August 2018 after failing to service bank loans as losses piled up and ate into its capital.
Mr Paunrana and Britain’s CDC Group, now known as British International Investment (BII), were the biggest losers in the collapse of the cement maker, having held billions of shillings’ worth of shares at the peak of the firm’s fortunes.
Principal shareholders, including the Paunrana family and UK’s development finance institution (DFI) CDC Group, failed to inject new capital to ease the problem.
The firm had racked up Sh14 billion in debt and had negative equity of Sh2.4 billion at the time.
The move into administration saw the exit of its long-serving chief executive Pradeep Paunrana, whose family founded the company in 1974.
The creditors opted for a sale of the firm’s assets to raise funds to settle the dues, effectively ending the family’s 40-year hold on the firm despite a last-ditch effort by Mr Paunrana to cobble together a financial package to acquire the assets.
The Kenyan assets were sold to National Cement Company, owned by billionaire businessman Narendra Raval for Sh5 billion, while those of the Tanzanian subsidiary known as Maweni Limestone were sold for Sh11.9 billion to Chinese firm Huaxin Cement.
Africa’s richest man, Aliko Dangote, was also interested in buying out ARM’s assets but his offer of Sh4.5 billion did not make it to the final bidding stage.
The higher recoveries from Maweni meant that all the claims totalling Sh8.7 billion due on the Tanzanian subsidiary, which included Sh538 million due to the Tanzanian tax authority, were settled in full.
The surplus from the Tanzania sale was, however, not transferred to pay the balance of the Kenyan claims, which included those of the firm’s shareholders.
On being queried about the surplus, Mr Paunrana directed the Business Daily to PwC, who had not responded by the time of going to press.
Shareholders are ordinarily the last lot in the compensation pecking order whenever a collapsed company goes into liquidation.
BII had invested $140 million (Sh16.3 billion at today’s exchange rate) in ARM in April 2016, securing it a 42 percent stake in the company.
The development finance institution (DFI) in February 2019 said it had written off 97.4 percent of the equity investment, valuing the stake at just £2.8 million (Sh410 million) at the time.
Additional capital
Its losses would have been larger if it had accepted ARM’s request to provide additional capital in the months leading to the placement under administration in August 2018.
ARM shares remain suspended at the Nairobi Securities Exchange (NSE) since August 20, 2018, having last traded at Sh5.55 each.
Mr Paunrana also saw massive erosion of his paper wealth in the firm in the period leading up to the administration and receivership, with little hope of accessing any funds during the subsequent sale of assets.
The Paunrana family, through Amanat Investments, held a 14.3 percent shareholding, while Pradeep owned a further 9.3 percent stake in the company directly.
At the beginning of 2014, when the share touched a high of Sh98 per unit, the family’s combined stake was valued at Sh11.4 billion, making it one of the largest fortunes held by a single family at the bourse at the time.
Mr Paunrana made a last-ditch effort to keep the firm’s assets in this family’s hands in May 2019 with a bid of Sh6.5 billion to rival that of Mr Raval. But this was turned down by the administrators on grounds that the offer letter did not provide any concrete proof of funding, which they deemed a critical consideration for the bidding.
PwC had already settled on the sale of ARM Kenya assets for Sh5 billion to National Cement by the time Mr Paunrana lodged the offer.
