11 July 2018

Kenya: World Bank Unit to Buy Out Sh12 Billion ARM Cement Loans

The International Finance Corporation (IFC) is set to take over $120 million (Sh12 billion) of ARM Cement loans as part of the Nairobi Securities Exchange-listed firm's efforts to ease its debt burden.

This will add to a $20 million (Sh2 billion) loan to be provided by British investment fund CDC Group, which has a 41 per cent stake in the company.

"We are restructuring our balance sheet to enable the business to recover," chief executive Pradeep Paunrana told the Business Daily in an interview.

The CDC loan, whose terms are being worked out, is expected to be received within two months. The IFC loan, expected within a year, will be repaid at an interest rate of about six per cent and mature in 10 years.

The IFC has also proposed a $50 million (Sh5 billion) equity investment but Mr Paunrana said it would have to wait until ARM's market value rebounds, adding that the current share price undervalues the company significantly.

The stock has dropped sharply to trade below Sh4 from a peak of nearly Sh100.

External auditors Deloitte & Touche in their audit report stated that ARM's assets were overstated. The firm's share also suffered from revelations that it had defaulted on paying interest charges on a bond it issued in 2015.

The new borrowings will be used to retire the cement maker's existing short to medium term debt that is relatively expensive, with interest rates ranging between nine to 17.5 per cent.

ARM's creditors include Lagos-based African Finance Corporation, which it owes Sh4.4 billion and Stanbic Bank #ticker:CFC (Sh3.3 billion).

The cement maker also has bonds and commercial papers, with its total borrowings standing at Sh14.4 billion as of December 2017.

Raising new funds became urgent after ARM suffered major losses, leading to defaults and breach of covenants set by its lenders.

"The company signed facilities with AFC, Stanbic Bank and Aureos which contain some financial covenants, which are monitored against the annual audited financial statements. The group is not in compliance with all the financial covenants but expects to receive waivers from the financiers," ARM says in its latest annual report.

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