Oman’s largest cement manufacturer Raysut has made a Sh10.2 billion bid for ARM Cement, putting a price to the auction and opening what may be a bruising fight against Nigeria’s Dangote Cement for the troubled Nairobi Securities Exchange-listed firm.
Dangote Cement, which was the first to show interest in ARM has not disclosed its bid price, which cannot now be less than Raysut’s.
The Omani firm’s bid is being seen as a show of the confidence it has in taking over the heavily indebted cement maker and turning it around.
“ARM Cement, which is a producer and major supplier of cement in Kenya and Africa in general recently went into administration with a debt of over $140 million (Sh14.2 billion) and Raysut has expressed its interest to the administrators to acquire the company,” the conglomerate said in a statement.
“The acquisition is estimated to be valued at over $100 million (Sh10.2 billion.”
At Sh10.2 billion, Raysut’s bid is enough to fully compensate secured ARM creditors, who are owed a total of Sh7.2 billion.
Unsecured creditors, who are claiming Sh6.7 billion, risk taking a significant haircut should the company be sold at this price though it would also be a big save from the looming threat of losing everything in the event of total collapse.
Shareholders like UK sovereign wealth fund CDC Group and ARM’s former CEO Pradeep Paunrana, on the other hand, are staring at major losses as little cash is likely to spill over to them.
The Omani multinational, which is already a major supplier of clinker (a cement raw material) to local firms, says ARM fits well into its East African expansion plan.
ARM’s administrators PricewaterhouseCoopers (PwC) had not responded to our queries by the time of going to press. The business advisory firm has hired South African banking giant Absa to handle the process of selling the cement manufacturer.
If Raysut’s bid for ARM is successful, it will add to the multinational’s aggressive expansion in the region. The company says it is currently setting up cement plants in Somalia while also in discussions to acquire various cement producers in Djibouti and Uganda, including Kampala Cement.
Its moves underline the strategy of major cement producers who are spending big in acquisitions and new projects to capture a large share of the Pan African cement business that is seen benefiting from major private and public infrastructure projects.
“The acquisition will complement Raysut’s revised strategy to manufacture clinker in proximity to the markets it supplies to in East Africa,” the multinational said.
ARM operations in Kenya include a clinker and cement grinding plant in Kaloleni and a cement grinding plant at Athi River. The company also manufactures, imports and sells cement in Rwanda through its wholly owned subsidiary Kigali Cement Company.
In Tanzania, ARM runs limestone, clinker and cement plants through its subsidiaries Maweni Limestone Limited and ARM Tanzania. The Omani firm supplies about 300,000 tonnes of clinker to Kenya and Tanzania alone in one quarter from its home plant at Salalah.
Raysut’s ambitious expansion plan was crafted by its chief executive Joey Ghose, a Kenyan based in Oman, and who intends to grow the multinational’s production capacity to 20 million tonnes per annum by 2022. The bid now puts pressure on rivals such as Dangote, which announced its interest in ARM last month, without indicating the price it was willing to pay.
The latest attempt to sell the insolvent firm comes after several bidders including French multinational Vicat Group walked away earlier this year. PwC was to receive more bids until Monday this week, after which shortlisted firms are to be allowed to start their due diligence including interviewing management.
The interest in ARM comes after the administrators established that the company has a negative equity of Sh2.4 billion, meaning that current shareholders will suffer a major dilution if a takeover deal is concluded.
PwC says the top priority is to keep ARM operational for the benefit of various stakeholders including employees and lenders, which it owes some Sh14 billion.