ARM of Kenya to Convert Tanzanian Unit’s Debt Into Equity

DAR ES SALAAM (Capital Markets in Africa) – ARM Cement Ltd. will convert 21.6 billion shillings ($208 million) owed by its Tanzanian unit into equity, Chief Executive OfficerPradeep Paunrana said.

The Nairobi-listed company guaranteed Maweni Limestone Ltd.’s debt, including facilities amounting to 5 billion shillings loaned by the Trade and Development Bank, Development Bank of Southern Africa Ltd. and the East African Development Bank. ARM’s auditors raised concerns over the loan because the company had not provided for the debt in its 2017 financial statements.

“Maweni debt is to be converted into equity shares,” Paunrana said by text message in response to questions, without giving further details.

ARM closed 5.6 percent lower at 3.4 shillings in Nairobi after jumping as much as 8.3 percent in late afternoon trade. They dropped to as low as 3.25 shillings after the Business Daily newspaper reported the company had defaulted on a bond-interest payment due in June.

ARM’s overall debt would not increase even if the Tanzanian debt was written off, according to Navishka Paunrana, its director of investor relations. That the company has not “provided for the impairment of this investment is an observation with a clear statement in auditors’ opinion that even if the company had provided for this impairment there would have been no effect on the group’s loss for last year,” she said in an emailed response to questions.

Crippling Debt
The company, struggling under the weight of its ballooning debt and sagging investor confidence, has been seeking an investor since October to help stem losses that more than doubled to 6.55 billion shillings last year. Companies including LafargeHolcim SA, the largest producer, HeidelbergCement AG of Germany and Nigeria’s Dangote Cement Plc were among parties said by people familiar with the matter to be considering bids.

ARM said in June it had began restructuring its balance sheet after being crippled by its poorly performing Tanzanian unit, which has been undermined by power rationing from the national grid, inadequate coal supplies and what the Kenyan company called “hyper-competition.”

The company’s debt stood at 14.4 billion shillings by the end of 2017, according to its annual report. It defaulted on a coupon payment for a $10.3 million loan carrying a 17.5 percent interest rate, according to a note by EFG Hermes Kenya Ltd., which has a sell rating on the stock. Group revenue could slump 47 percent to 4.6 billion shillings this year, it said.

“On the basis that ARM’s long-term survival in its current form is dependent on rescue capital raising, which may be delayed or, at worst, not happen at all, we believe it is prudent and timely to assess its liquidation or break-up valuation,” EFG Hermes said, estimating a net asset value of 33.47 shillings per share should the company be wound up.

Source: Bloomberg Business News