Kenya: Athi River Mining Set for Liquidation, Delisting at the NSE

Troubled cement maker Athi River Mining is set for liquidation in the next five months and eventual delisting from the Nairobi Securities Exchange after more than two years under administration failed to revive its operations.

The EastAfrican has learnt that the transition of the company to liquidation from administration is set to take place on September 30 with the joint administrators becoming joint liquidators to facilitate an orderly winding-up of the affairs of the company and its subsidiaries, in line with the mandate of a liquidator as set out in the Insolvency Act (2015).

The company's stock was suspended from trading on the NSE indefinitely, effective May 8, 2020.

The joint administrators -- George Weru and Muniu Thoithi of PricewaterhouseCoopers (PWC) -- revealed in a letter to the creditors dated April 19 that the once largest regional cement maker can't be salvaged and that it is unlikely that their claims will be settled in full from the proceeds of the ongoing disposal of the firm's shares to investors.

"Considering that material assets and interests of the company are in the final stages of being disposed and further that, based on realisations, it is unlikely that the creditors of the company will be settled in full, the only available exit option from the administration process is to transition the company into liquidation, the joint administrators said in a letter seen by The EastAfrican.

"The administrators are working towards completing the affairs of the administration of the company by September 30, 2021, to facilitate the transition into liquidation."

According to the administrators, the secured creditors of ARM are estimated to recover between 34 percent and 70 percent while the unsecured creditors are expected to recover between 1.8 percent and 6.5 percent from the sale of the company's assets (including subsidiary interests).

According to the administrators, the higher recoveries of 70 percent and 6.5 percent would only be achieved if the Tanzanian Revenue Authority tax claim of $22 million in respect to the sale of Maweni Limestone Ltd and the Kenya Revenue Authority tax claim of $4 million in respect to the sale of the Kenyan business to the Devki Group is resolved in favour of ARM.

The proposal for the existing joint administrators to become joint liquidators of the company was approved by the creditors at a meeting held on October 23, 2018.

During the same meeting the creditors also approved the implementation of a robust, competitive and transparent transaction process aimed at identifying strategic or financial investor(s) in ARM in connection with a recapitalisation of the company, and/or a sale of all or some of the assets of the company and/or a comprehensive restructure of its debt obligations.

The Insolvency Act (2015) allows financially distressed companies to go through an administration process to explore possible ways of recovery before being pushed into liquidation.

Administration is a tool designed to offer breathing space for insolvent companies by giving them an opportunity to put their operations in order rather than kill them through liquidation as was the case in the previous law.

ARM, which was put under administration by the United Bank of Africa over a loan default on August 17, 2018, has failed to recover from financial scars afflicted by the mismanagement of its former directors and the assets and businesses it has put on sale are not enough to pay off close to $284 million debt.

In October 2019, the administrators completed the sale of all cement and non-cement assets and the business of ARM Cement PLC in Kenya to National Cement Company Ltd, which is owned by the Devki group of companies at $50 million. However, $4.3 million of the proceeds of the sale have been locked up by the Kenya Revenue Authority in respect of contested tax claims and are not available for distribution to secured creditors.

In Tanzania, ARM completed the sale of all the shares it held in Maweni Limestone Ltd, its main subsidiary, to Huaxin Cement Co. Ltd through its subsidiaries Huaxin (Hong Kong) International Holdings Ltd and Huaxin (Tanzania) Investment Ltd for a capital injection $116 million.

The transaction was completed in May 2020, but the Tanzania Revenue Authority imposed a $22 million capital gains tax (CGT) on the profit of the sale, which the joint administrators have contested.

"The administrators are currently pursuing resolution of this tax claim in order to unlock a surplus to be transferred to ARM for further distribution to ARM's creditors," according to the administrators. The administrators have also received offers to purchase the shares and the assets of ARM (Tanzania) Ltd and discussions are ongoing with the most responsive bidder with a view to agreeing and concluding the transaction.

Like the Maweni transaction, any surplus from this transaction after the settlement of all the creditors of ARM Tanzania, will be transferred to ARM for the benefit of its creditors

In South Africa, ARM subscribed to 70 percent of Mafeking shares in May 2009 and signed a shareholders' agreement, which provided for certain activities, related to the development of the deposit held by Mafeking, that ARM needed to fulfil within a prescribed period. In February 2019, the minority shareholders filed a petition seeking cancellation of the shareholders' agreement and ceding of ARM's shares in Mafeking to themselves, citing non-performance by ARM.

As a result, administrators have taken steps to defend this petition and, in parallel, sought to reach amicable settlement of the dispute with the minority shareholders.

The EastAfrican has learnt that the determination of the court matter is likely to be concluded at the end of June, with the key objective of defending the matter being to minimise costs and exposure from the litigation and holding costs.

In Rwanda, the administrators received the approval of the Rwanda Development Board's Registrar-General in January this year to commence the liquidation of Kigali Cement Company Ltd with the objective of settling any claims against the company and achieving an orderly wind-up of the affairs of the subsidiary.

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