CDC Made Wrong Call on Investment in Kenyan Cement Maker ARM

NAIROBI (Capital Markets in Africa) – CDC Group Plc misjudged the potential of Kenyan cement maker ARM Cement Plc when agreeing to invest $140 million almost three years ago, and is banking on the prospect of an acceptable buyout offer in a forthcoming auction.

The U.K. investment firm allocated over half of its Kenyan portfolio to ARM to back an expansion into Tanzania and the development of a potential East African regional champion, Chief Executive Officer Nick O’Donohoe said in an interview.

“You look back and you examine the decisions you made, the due diligence you did, the assumptions you made about market developments, and clearly in that case we got some of it wrong,” the CEO said. “The competitive environment turned out to be more difficult than we expected it to be.”

ARM is now in administration, and transaction adviser Absa Group Ltd. expects to receive binding offers this week from strategic investors and those willing to inject working capital for fixing machines and importing coal to factories, according to a turnaround plan.

Dangote Cement Plc., owned by Aliko Dangote, Africa’s richest man, is interested in buying ARM to strengthen its market-leading position on the continent, according to people familiar with the matter. Oman-based Raysut Cement Co. is the only firm so far to make a public expression of interest, valuing ARM at $100 million. That valuation is lower than what CDC paid for a 41 percent stake in the company in 2016.

“It would be nice as equity holders if we also got some return from the transaction,” said Tenbite Ermias, CDC Africa’s managing director, in the same interview. “It’s okay, it happens. We’d rather it didn’t happen, but it does not change our appetite in Kenya.”

Ethiopia is a “very exciting” opportunity for CDC as President Abiy Ahmedopens up Africa’s fastest growing economy to foreign investors, Ermias said. The privatization of the telecommunications industry is a great first step in that direction, he said.

CDC sees investment opportunities in several African countries including Nigeria and Ghana in the west, according to O’Donohoe.

Source: Bloomberg Business News