ARM Cement plant in Tanga, Tanzania. The sale of ARM Cement’s assets in Tanzania raised funds that paid all the claims of creditors in that market and left a surplus of Ksh2.3 billion ($19.6 million) that was transferred to Kenya. PHOTO | FILE
The cement firm’s debacle demonstrates the risks of sitting at the bottom of the payment waterfall where a creditor is only compensated after claims from others higher up in the hierarchy have been settled.
ARM’s financial difficulties saw it placed in administration in August 2018 after failing to service bank loans as losses piled up and ate into its capital, with the principal shareholders, including the Paunrana family and UK’s sovereign wealth fund CDC Group, failing to inject new capital to ease the problem.
The sale of ARM Cement’s assets in Tanzania raised funds that paid all the claims of creditors in that market and left a surplus of Ksh2.3 billion ($19.6 million) that was transferred to Kenya.
Locally, the funds were used in paying liabilities such as amounts owed to banks and investors in the firm’s commercial paper.
The firm’s Tanzanian subsidiary, Maweni Limestone Ltd, was sold by the administrators PricewaterhouseCoopers (PwC) to Chinese firm Huaxin Cement for Ksh11.9 billion ($101.8 million).
The amount was more than enough to settle all the claims totalling Ksh8.7 billion ($74.4 million) due to Maweni’s creditors, including Ksh538 million ($4.6 million) which was due to the Tanzanian tax authority.
“Over $20 million was transferred to Kenya and added to the Kenya proceeds to pay creditors,” the administrators told Business Daily.
The Kenyan assets were sold to National Cement Company, owned by billionaire businessman Narendra Raval, for Ksh5 billion ($42.7 million).
Despite the surplus cash from Maweni, Kenyan creditors suffered substantial losses in the liquidation of the cement manufacturer.
Lenders and unsecured creditors lost Ksh11.5 billion ($98.4 million) in the process while shareholders were completely wiped out.
Unsecured creditors, who laid an aggregate claim of Ksh9 billion ($77 million) on the firm, took the biggest haircut after only recovering 6.2 percent of this amount. Secured lenders — mainly banks such as Absa Bank Kenya and UBA Bank Kenya — were paid Ksh4.98 billion ($42.6 million) out of their claims totalling Ksh8.03 billion ($68.7 million).
Preferential creditors, which have priority in being paid in bankruptcies, were compensated in full at Ksh326.6 million ($2.7 million).
The cement firm’s debacle demonstrates the risks of sitting at the bottom of the payment waterfall where a creditor is only compensated after claims from others higher up in the hierarchy have been settled.
The biggest unsecured lenders included holders of ARM’s commercial paper and bonds worth Ksh1.82 billion ($15.5 million), private lender Aerous at Ksh1.55 billion ($13.2 million) and Stanbic Bank at Ksh920.1 million ($7.8 million). The cement maker’s former employees were also owed salary arrears worth Ksh30 million ($256,739).
ARM’s financial difficulties saw it placed in administration in August 2018 after failing to service bank loans as losses piled up and ate into its capital, with the principal shareholders, including the Paunrana family and UK’s sovereign wealth fund CDC Group, failing to inject new capital to ease the problem.
It had racked up Ksh14 billion ($119.8 million) in debt and had negative equity of Ksh2.4 billion ($20.5 million) at the time.
The move into administration ushered out its long-serving chief executive Pradeep Paunrana, whose family founded the company in 1974.
