Companies

Troubled ARM suspends staff pension as cash crunch bites

ARM

Pradeep Paunrana, ARM chief executive (left). Workers at the firm's milling plant in Athi River (right). FILE PHOTOS | NMG

More than 2,000 employees of the Nairobi Securities Exchange-listed cement maker ARM #ticker:ARM are facing a grim future following months of delayed payment of salaries that have stalled their pension and medical insurance benefits.

ARM stopped remitting staff pension contributions in June last year and has since moved to announce plans to officially suspend payment of the retirement benefits on June 30, 2018.

The cash crunch, which ARM attributes to difficult market conditions, is the latest signal that the company’s year-long efforts to raise funds from asset sales as well as bring on board a strategic investor are yet to bear fruit.

ARM wrote to its staff on Friday, informing them that the company’s pension plan (managed by Zamara) and medical insurance scheme (by AAR) will be suspended from June 30 until further notice.

“As you are all aware ARM Cement is experiencing some financial challenges due to difficult market conditions,” the company said in the staff memo. “This has forced the company to restructure and reorganise its priorities to ensure it can continue carrying on its business and most importantly to save the jobs of all its staff.”

The cement manufacturer contributes to its employees’ retirement scheme at a rate of five per cent of their basic pay, with the workers making a similar contribution.

ARM said that staff opposed to the cut in benefits should lodge their objection by the end of this week, indicating that they could be retrenched thereafter. Those who accept the changes will have their contracts amended on or before May 31.

Suspension of the two benefits comes amid erratic salary payments and failure to remit pension contributions since June last year.

Affected staff yesterday told the Business Daily that they plan to seek the intervention of relevant regulators, including the Retirement Benefits Authority (RBA).

ARM’s chief executive, Pradeep Paunrana, had not responded to our queries by the time of going to press.

Stock performance

At the stock market, the company’s shares traded at a new low of Sh4.05 yesterday, giving it a market capitalisation of just Sh3.8 billion.

ARM’s share price has been on a free fall since 2015 when its multi-year losses started, exposing the pitfall of its debt-fuelled expansion.

The Paunrana family and British investment fund CDC Group top the list of big losers in the stock rout. CDC’s 41 per cent stake in the cement manufacturer now has a market value of Sh1.4 billion or 10 per cent of the Sh14 billion it invested in August 2016.

The Paunranas, whose paper wealth peaked at Sh20 billion in 2014, had their holdings quoted in the market at nearly Sh900 million yesterday.

READ: ARM boss gets Sh1bn shares in reward plan

The company’s share price has been dropping by the maximum margin of 10 per cent in recent days, underlining investor discomfort.

ARM has warned investors that its net loss for the year ended December 2017 will widen by at least 25 per cent from Sh2.8 billion a year earlier. The upcoming results are expected to give investors an update on the depth of the company’s capital needs.

The cash injection by CDC has been insufficient to stabilise ARM, whose efforts to raise new capital have dragged on for years.

The cement manufacturer earlier announced plans to sell its non-cement businesses for Sh1.6 billion.

Buyers of the subsidiaries were identified as Swiss industrial firm Omya and Pinner Heights Kenya — an investment vehicle owned by the Paunranas.

Besides, the cement firm has not given an update on separate plans to raise more capital from a new strategic investor.

CDC, one of the largest investors in Africa with assets of more than Sh600 billion, appears to have sidestepped ARM’s new capital raising plans.

The company’s executive director, Rick Ashley, who previously held the position of chairman, resigned earlier this month amid the turmoil.

READ: ARM's director, secretary resign

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