UBA Bank placed ARM under administration as the Kenyan cement firm struggled to repay a Sh500 million overdraft borrowed from the lender.
Court filings as well as senior insiders at the company tell of how UBA Bank’s strict interpretation of its loan conditions thwarted ARM’s frantic efforts to stay afloat, despite UK sovereign fund CDC’s documented promises to inject working capital into the firm.
Dangote Cement, owned by Africa’s richest man Aliko Dangote, has a close business relationship with the Nigerian-based lender United Bank for Africa (UBA Bank).
Insiders at troubled cement maker ARM #ticker:ARM have pointed an accusing finger at Nigerian conglomerate Dangote Cement, citing close links between the company and UBA Bank which placed it under administration.
UBA Bank placed ARM under administration as the Kenyan cement firm struggled to repay a Sh500 million overdraft borrowed from the lender.
Court filings as well as senior insiders at the company tell of how UBA Bank’s strict interpretation of its loan conditions thwarted ARM’s frantic efforts to stay afloat, despite UK sovereign fund CDC’s documented promises to inject working capital into the firm.
Dangote Cement, owned by Africa’s richest man Aliko Dangote, has a close business relationship with the Nigerian-based lender United Bank for Africa (UBA Bank).
The Lagos-headquartered UBA started a partnership with the Nigerian billionaire industrialist to provide banking services to his Dangote Cement empire in 13 countries across Africa a year ago.
The partnership is hinged on UBA's presence in all the 14 countries where Dangote Cement is building plants, except South Africa.
Dangote Cement, which has long held interest in venturing into Kenya, pushed back its entry into the country to 2021 having earlier planned to build a local cement factory this year.
However, UBA Bank Nairobi in a statement Wednesday said its decision to take over ARM Cement was not influenced by its ties with Dangote.
“This decision was necessitated by the deteriorating financial position of ARM and its fiscal constraints. UBA is a completely independent entity from the Dangote Group. All that exists is a business relationship in the countries of joint presence,” said UBA.
Dangote Cement last year announced a review of its Kenyan plans, noting that it will build two cement plants instead of one but will maintain the total capacity at three million tonnes per annum.
“Kenya is high on our priorities and we plan to build two plants of 1.5 million tonnes per annum each, near Nairobi and Mombasa, to serve the local market. We hope to be operational in Kenya by 2020/21,” the company said in its latest annual report.
UBA maintained that the decision to appoint an administrator was made with the support of other secured lenders of ARM.
“We consider that the appointment of an administrator in accordance with the Insolvency Act, 2015 (“Act”) will provide ARM with the possible best chance for a successful turnaround and enable it to resume normal business operations as soon as possible,” it said.
UBA says ARM shareholders failed to keep promises to inject fresh capital into the business, which had defaulted on UBA’s Sh250 million per month repayments.
“Notwithstanding the appointment of the administrator, CDC remains the largest-single shareholder of ARM and will have the opportunity to present any proposal it may have to inject new funding to the administrator, who may seek to have such proposal approved by the creditors,” it said.
ARM’s management traces its problems to its decision to venture into Tanzania, after a clinker plant it built in the country in 2014 failed to generate income.
The 1.2 million metric tonnes annual capacity plant in northeast Tanzania’s port town of Tanga was hit by electricity rationing, inadequate supply of coal and increased competition in the market from rivals, including Dangote Cement.
The UBA loan, issued under stringent terms, shows a company that was desperate to pull back from the brink.
ARM took multiple loans, secured by all assets of the company under conditions that were heavily skewed to favour the banks.
It did not give the bank any room to renegotiate or restructure its debt in the event of unforeseen circumstances.
“The borrower (ARM) hereby irrevocably appoints the lender as its attorney and unreservedly authorises the lender and/or its appointees to take over and execute on behalf of the borrower, in the vent that the borrower’s performance on the facility is impaired at any material time by the occurrence event whatsoever,” says one of the clauses in the agreement with UBA dated June 21, 2017.
The agreement further indicated that the company had authorised UBA "to execute any instrument as necessary in this respect to recovering the debt".
While some clauses are standard in all loan agreements, UBA went further to protect itself while ARM dropped all guards as it desperately sought funding.
