Loss-making East African Portland Cement Company (EAPCC) has approached the government to acquire some of its 14,000-acre idle land as part of a strategy to raise up to Sh45 billion in new capital.
The Nairobi Securities Exchange-listed firm says it will concurrently launch a rights issue underwritten by development finance institutions (DFI), which could dilute the Treasury stake in the company, ending its status as a parastatal.
The twin fundraising strategies are expected to be implemented over the medium term and the money will be used to repay debt and invest in new plants and upgrade the existing factory.
EAPCC has posted the worst financial performance among the listed cement makers, partly due to mismanagement and shareholder wars in recent years.
“The government is interested in the non-operational land owned by EAPCC and EAPCC is interested in extracting value from its idle assets to support implementation of its turnaround plan,” the company said in a statement.
“In view of this, EAPCC is in structured discussions with the government on a special scheme that will allow the government to secure the land for its future projects and to purchase the land over an agreed period of time at an agreed price.”
The firm says the government will take possession of the land and make provisions in the annual budget to pay the company over the years.
The government could buy parts of the land for itself or for other investors in the proposed call option deal which EAPCC says has an additional advantage of solving the problem of squatters who have laid claim to some of its land.
“This kind of contract secures the land while the government makes provisions in its annual budget for EAPCC’s drawdown when they need it. The government will have lien over the 14,000 acres in question,” the company said.
The EAPCC has in the past moved to sell part of its land holdings without success and it remains to be seen whether letting the government lead the process will work.
The company’s land is carried in its June 2016 audited accounts at Sh8.4 billion but the directors say this is a highly conservative figure in light of the prevailing market prices.
Besides the land transactions, the EAPCC also plans a massive cash call of an unspecified amount that is unlikely to be supported by its existing institutional investors and the few thousand individual shareholders.
LafargeHolcim holds a 41.7 per cent stake in the EAPCC where the interests of the Treasury and the National Social Security Fund (NSSF) stand at 25.3 per cent and 27 per cent respectively.
The government has combined the ownership of NSSF and the Treasury to classify the EAPCC as a parastatal and maintain control over the company against a series of challenges by its managers and LafargeHolcim in the past.
“Should the existing shareholders not take up the new shares, DFIs can take them up thereby diluting the current shareholding,” the company said.
“There’s a likelihood that government will opt not to increase its shares, NSSF and Lafarge might take up more, either way, government will be diluted thereby killing the parastatal tag on EAPCC.”
The company’s current liabilities have overtaken its short-term assets by Sh2.8 billion and a Sh6.2 billion gain on revaluation on its properties masked a Sh1.5 billion loss from operations in the year ended June.