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Queries over steep discount in planned sale of Portland
East Africa Portland Cement Company. The Court of Appeal has rejected an application by a group of homeowners in Mavoko, Machakos County, who had sought to block the firm evicting them from parcels of land claimed by the cement firm.
The planned sale of East African Portland Cement (EAPC) to a Tanzanian tycoon has sparked uproar in Parliament over the discounted cost of the deal said to be way below the market price.
MPs have queried why shares in the asset-rich firm were being sold at a price that does not reflect the book value of Sh20.4 billion and the market valuation of the cement maker.
Businessman Edhah Abdallah Munif is buying 26.32 million EAPC shares, from Swiss multinational Holcim, at Sh27.30 each, valuing the deal at Sh718.7 million. Munif is using an investment firm known as Kalahari Cement Limited in the deal.
What Munif has offered is half the cement maker’s stock price, the lawmakers said. Portland Cement shares closed trading at Sh61.75 a piece yesterday, placing the market value of the firm at Sh5.55 billion.
National Assembly departmental committee on trade, industry and cooperatives said the firm acquiring the stake is eyeing EAPC assets whose value is in excess of Sh20 billion.
“Of particular concern to us is the proposed price of the transaction, an amount which is substantially below the prevailing market average price of East African Portland shares, potentially undermining market fairness,” said Marianne Kitany, the Aldai MP.
In the past year, the EAPC share price has gone up by 716 percent from Sh7.2 a unit, making it the top performer at the bourse in the period ahead of Sameer (609 percent) and Kenya Power (435 percent).
At the prevailing price, the company has a market capitalisation (valuation) of Sh5.55 billion, while Kalahari’s purchase price values it at Sh2.46 billion.
In its disclosures, Kalahari did not give details on how it arrived at the price it will pay Holcim in the negotiated transaction.
Both valuations are, however, well below EAPC’s net asset or book value of Sh20.4 billion, as per the company’s latest audited financial results dated June 2024. The company’s total assets stood at Sh35.19 billion, and total liabilities at Sh14.79 billion.
This shows that Kalahari is acquiring the 29.2 percent stake cheaply, and that the company remains undervalued at the Nairobi Securities Exchange (NSE).
The bulk of the company’s assets (Sh21.23 billion) are held in the form of investment properties, largely freehold land (4,626 acres) held under long-term lease arrangements.
The undervaluation at the market also indicates that investors may be factoring in the illiquid nature of the bulk of the firm’s land assets.
The company has had plans to sell off part of its expansive land holdings to raise Sh10 billion that would go towards working capital for its business. This is after winning a court battle in 2023 against squatters who had occupied the land for about 10 years.
Members of the committee pressed the Competition Authority of Kenya (CAK) and the Capital Markets Authority (CMA) to reject the offer price, arguing the deal may not be in the public’s best interest in the long term.
The State and the National Social Security Fund (NSSF) have a combined stake of 52 percent in EAPC.
CMA chief executive Wycliffe Shamiah said the regulator was powerless in dictating the offer price, arguing it reflects agreement between buyer and seller.
“The agreed consideration represents a significant discount compared to the current market value. However, the pricing reflects a negotiated price between two shareholders,” Mr Shamiah told the committee.
“The share price of East African Portland Cement Company has been volatile for some time. This is partly due to speculative trading as a result of Holcim announcing its intended exit from African markets,” he said.
This came after Munif’s firm, Amsons Group, completed the full acquisition of Bamburi Cement in December for Sh23.6 billion, cementing its hold on Kenya’s cement market.
With Bamburi Cement already owning 12.5 percent of EAPC, he will emerge as the single largest shareholder of the Athi River-based company with a 41.75 percent stake.
