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Cement tycoon in Sh5bn buyout of collapsed ARM

ARM plant in Athi River
ARM plant in Athi River. FILE PHOTO | NMG 

Narendra Raval, the billionaire businessman who founded the Devki Group of Companies, has acquired struggling cement processor ARM #ticker:ARM for Sh5 billion ($50 million) in a sign of shifting balance of power in the industry.

The deal announced Wednesday will see National Cement Company Limited, a wholly-owned subsidiary of the Devki Group, acquire all cement and non-cement assets and business of ARM Cement PLC in Kenya.

ARM Cement, founded in 1974 by the late family patriarch Harjivandas J Paunrana, has been the flagship business of the wealthy Paunrana family.

The buyout marks a humbling turn of fortunes for the family and particularly for Pradeep Paunrana, who has been the CEO and face of the business for decades.

Mr Raval, a multi-billionaire industrialist who has vast business interests in the construction sector, said the transaction will help position his company as the leading cement manufacturer in the region.

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“The industry is poised for growth and we are excited about the prospects for this next chapter of our business. We will endeavour to safeguard the interests of all stakeholders including the employees, customers and suppliers in the overall interest of Kenya,” he said.

The deal, which Mr Raval said will be financed through a combination of debt and internally generated cash, effectively edges out Africa’s richest man Aliko Dangote who had last year been linked to the takeover of the struggling firm.

Mr Raval’s Devki Group of Companies has a regional presence with companies manufacturing cement, steel products, and roofing sheets.

The Devki Group was already generating about $650 million (Sh65.8 billion) annual revenues by 2015, according to information on its website.

ARM administrators, PricewaterhouseCoopers (PwC), said National Cement presented the best bid for the business, having met the set criteria consisting of offer price, deal certainty (proof of funds) and terms and conditions. Mr Raval owns a cement grinding plant in Lukenya (Machakos County) and a clinkering plant at Simba town in Kajiado County. His Devki Group owns steelmaking factories in Athi River (Machakos) and Ruiru town in Kiambu County.

Companies under the Devki Group conglomerate include Devki Steel Mills Limited, National Cement Company Limited Uganda, Maisha Mabati Mills Limited and Northwood Aviation Limited.

In 2017, Mr Raval announced that he was beginning construction of two Sh3 billion cement factories, each with a capacity to produce 750 million tonnes of cement annually. The first plant is located in Mariakani, Kilifi County, while a second plant is in Rongai, Nakuru County.

This adds to another new cement clinker plant that he set up in Merrueshi/Mbirikani (Kajiado).

Mr Raval was in 2015 featured in Forbes Magazine ranking of Africa’s top 50 richest people with his fortune estimated at $400 million (Sh40 billion) at the time.

His 2018 autobiography titled ‘Guru: A long walk to Success,’ documents the journey of a boy from a little-known village of Mathak in Gujarat, India, into creation of one of East Africa's biggest privately held business groups straddling building, construction and aviation.

“These practical guidelines for succeeding as a trader or an industrialist are all based on my personal experiences in the world of commerce and industry, not drawn from any management textbook,” he states in the book.

The entrepreneur, 57, is also one of the country's notable philanthropists, spending millions annually on scholarships.

His deal in ARM brings to an end more than four decades of the Paunrana family’s stewardship of the Nairobi Securities Exchange (NSE) listed ARM.

ARM, with operations in Kenya, Tanzania and Rwanda, was placed under administration on August 17 last year for failing to meet its creditor obligations.

It had soaked Sh14 billion debt and showed negative equity of Sh2.4 billion at the time. The Sh5 billion buyout price nearly matches ARM’s last market valuation of Sh5.3 billion before the stock was suspended from trading at the NSE.

George Weru, an executive with PwC and one of the administrators of ARM Cement, yesterday said sale of ARM’s Tanzania and Ugandan subsidiaries is under way. The initial plan was to sell the whole company at once but it became clear that piece-by-piece transactions were the most optimal way to go, according to Mr Weru.

“Sale of Tanzania business could be completed in one to two months. There are bidders already. The Tanzanian subsidiary has a bigger operation and is expected to fetch a higher price than the Kenyan business,” said Mr Weru. He added that while the deal is a positive step towards realising value for the ARM creditors, it may be too soon for shareholders to celebrate. “It may be a challenge for proceeds to remain for distribution to shareholders, but let us wait for all the transactions to be completed.”

Completion of the Kenyan deal comes at a time the cement industry in the country is going through a tough time.

Cement consumption dropped for the second year in a row to 5.49 million tonnes in 2018, sending it to the lowest level since 5.19 million tonnes used up in 2014, according to Kenya National Bureau of Statistics data.

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