NAIROBI, JUNE 27, 2018 – Kenya’s ARM Cement will rely on short-term loans from shareholders to lift production back to capacity and seek a deep-pocketed strategic investor, its chief executive said on Wednesday, as the firm struggles to stem its financial woes.
The company, which was once Kenya’s second-largest cement maker behind LafargeHolcim’s Bamburi Cement, has seen its market share plunge to just 10 percent after the clinker plant it built in Tanzania 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 that market from firms like Nigeria’s Dangote Cement .
The investment drove up ARM’s debt and financing costs, further straining its cash flow. An independent auditor said earlier this month he doubted its survival.
Pradeep Paunrana, ARM’s CEO and main shareholder, told Reuters supplies of coal had improved, meaning the plant would now start supplying clinker to the Kenyan plant, boosting the turnaround plan.
“Bringing the company to where it was in terms of operational capacity is the key to make sure we get a good valuation,” he said.
Further announcements, including measures to strengthen the management, would be made in the next few weeks, he said.
The initial recovery plan would be funded by temporary loans from shareholders, including British development finance institution CDC Group, which invested $140 million in the company in 2016.
He said the sizes of the loans would be determined later.
The company would then scout for a strategic investor to put in the required cash, Paunrana said.
“Multinationals have a long-term horizon and can ride out difficulties in one particular market,” he said of the kind of suitor ARM hopes to attract.
He defended the decision to invest in Tanzania, which sparked off the crisis, saying it was based on sound business principles at the time.
“Tanzania was the darling of the world then. It had double digit growth, prices (of cement) were very good and there were capacity shortages,” he said.
The plant was meant to supply clinker to ARM’s grinders in Tanzania, Rwanda and Kenya.
Like other companies operating in Kenya, ARM was hit hard by an election-related slowdown last year, but Paunrana said the country had now started experiencing high economic growth, stimulating demand for cement.
“The situation was very grim, we have overcome that phase,” he said.
