It’s do or die as creditors meet to decide ARM’s fate

Troubled cement maker ARM’s #ticker:ARM fate will be known later this month when its creditors, including banks that placed it under administration, meet to vote on how to settle the company’s mountain of debt.

ARM, currently suspended from trading on the Nairobi Securities Exchange (NSE) #ticker:NSE , is considering liquidation, raising Sh5 billion through a rights issue or selling more assets, including the Tanzanian operation, among other options, Pradeep Paunrana, the founding shareholder said.

Mr Paunrana who, it has emerged, still works for ARM as chief executive officer, said all options were on the table in the fight to get the company back on its feet.

“ARM can be sold, we can raise money from existing shareholders and we can also sell assets,” Mr Paunrana said at ARM’s head office in Westlands where he now reports to the company’s administrators PricewaterhouseCoopers (PwC).

“A creditors’ meeting will have to be held by end of this month and that is when they will choose the path we will take.”

UBA Bank, which had provided ARM with a Sh500 million short-term loan, on August 17 appointed PwC’s Muniu Thoiti and George Weru to manage the cement maker in an effort to recover the debt.

The administrators asked the company’s bankers and suppliers to file their claims ahead of the crucial meeting in which creditors owed an aggregate of at least 75 per cent can decide on a solution that will be binding to all, including the dissenters.

African Finance Corporation (AFC), which provided ARM with a loan of Sh4.6 billion, and Stanbic Bank #ticker:CFC (Sh3.2 billion) will have a major influence at the meeting as they hold nearly 36 per cent of the total outstanding liabilities of Sh21.7 billion as of June.

Whichever option the creditors settle on will take about one year implement, said Mr Paunrana, who is yet to complete his Sh1.6 billion purchase of ARM’s non-cement business in partnership with Swiss firm Omya.

If creditors choose to liquidate the cement manufacturer, its assets will be sold and the proceeds used to pay off banks, bondholders and suppliers.

Any surplus remaining will then be distributed to shareholders according to the weight of their ownership.

Assuming the company realises the book value of its assets, shareholders could share a total of Sh20.8 billion going by the rate of about Sh22 per share.

Getting a strategic investor to buy ARM is likely to be a tall order, several suitors having walked away in a recent attempt to sell the cement maker.

Mr Paunrana said a more likely option is to raise Sh5 billion through a rights issue to be structured by PwC. The offer will then be made to existing shareholders, who will have the option of snubbing the cash call or transferring their rights to other investors.

ARM’s share price collapse is, however, likely to complicate such a transaction. The company last traded at Sh5.5 per share, meaning that offering a discount on that price will be a further hit to long-term shareholders, who have lost more than 90 per cent of their paper wealth.

ARM could also sell more assets, a move that will raise funds to reduce its debt. That will leave it with a smaller but potentially more profitable operation.

ARM’s suspension from the NSE is likely to continue beyond October 26 as PwC works with creditors to find the best possible solution.

Mr Paunrana, however, acknowledged that the administrators have the final say, having effectively replaced the board in the strategic and day-to-day running of the company.

Mr Paunrana said he never resigned from the company, indicating that the previous announcement of his departure was the result of an internal power struggle that subsided with the entry of PwC.

ARM, he added, is currently producing cement at a 30 per cent capacity in Kenya and 25 per cent in Tanzania, noting that these levels are not sustainable in the long term.