Paunranas lose Sh17bn ARM wealth in 3 years


The value of Paunrana family’s wealth in cement maker ARM #ticker:ARM dropped by Sh17.8 billion in three years as the company battled the challenges of debt-fueled growth and a persistent pricing war arising from the entry of multiple players in the market.

ARM’s stock yesterday touched a new low of Sh12.7 at the Nairobi Securities Exchange (NSE), taking the market value of the Paunranas’ wealth down to Sh2.7 billion from Sh20.6 billion in August 2014 when it touched a high of Sh91.

ARM’s 86 per cent share price erosion in three years was exacerbated by last year’s dilution that came with the sale of a 42 per cent stake to UK sovereign wealth fund CDC Group for Sh14 billion.

The cash injection has proved insufficient to turn around the company’s fortunes – at least judging from the half- year financial report showing it fell into deeper losses.

This is the period during which ARM announced asset sales and new dilutive capital-raising plans, further spooking investors.

ARM’s borrowings peaked at Sh24.3 billion in 2015 when it reported a net loss of Sh2.8 billion, breaking 14 years of relentless profit growth that worked out at a compounded annual growth rate of 31 per cent to peak at Sh1.4 billion in 2014.

The loss, which ushered in an era of negative earnings, exacerbated ARM’s debt problem that saw it approach investors in what culminated in the CDC investment.

Analysts said ARM would have raised capital on better terms during the period of robust profit growth when it was approached by several suitors but spurned them.

Mr Paunrana reckoned that investors have overreacted to the company’s current challenges, insisting the firm remains solid.

“There is tremendous value in the company. The fundamentals are strong. What needs to be done is to extend the maturity of the loans and we are working on that,” he said.

At Sh12.7, ARM’s share price is a 58.7 per cent discount on the book value per share of Sh26.3, indicating investors may have factored in the upcoming dilution from a new investor.

The Paunranas mainly own shares in ARM through Amanat Investments, although several family members have direct ownership.

ARM’s records show that Amanat sold some 8.5 million shares last year, marginally reducing its stake to 218.6 million shares from 227.1 million in 2014. The traded shares have a current market value of Sh108 million.

Mr Paunrana has, however, maintained his personal holding of 89.6 million shares that is now valued at Sh1.1 billion from Sh8.1 billion in August 2014.

ARM last year issued a total of 111 million shares to its staff through the employee share ownership plan (Esop) and it was not immediately clear whether Mr Paunrana participated in the scheme.

The company’s troubles can be traced to its decision to finance its Tanzania expansion through debt only to meet huge operational challenges in the new market.

Mr Paunrana has himself attributed the company’s wider loss in the half-year ended June to its Tanzanian operations.

ARM’s net loss stood at Sh1.4 billion in the review period, widening 5.3 times from Sh266.7 million a year earlier.

“We were selling cement at a price below cost in Tanzania for the past six months,” Mr Paunrana said in an interview earlier this month, adding that cement price in that market fell from $88 per tonne in September last year to lows of $60 per tonne this year.

The price wars were sparked by the entry of Nigeria’s Dangote Cement, which is known to slash prices to gain market share, hobbling weaker players.

Mr Paunrana said its Tanzanian operation has rebounded in recent days on the back of improved pricing and higher spending on infrastructure, among other factors.

Besides raising new funds from a strategic investor, ARM is also set to sell its fertiliser and minerals business to Swiss industrial firm Omya in a transaction that may fetch the company at least Sh5.4 billion.