ARM Cement CEO Says IFC Is Yet to Agree on Capital Injection

(Bloomberg) -- ARM Cement Ltd. of Kenya has yet to reach an agreement with the International Finance Corp. about a capital injection in the struggling Kenyan company, Chief Executive Officer Pradeep Paunrana said.

Business Daily, a Kenyan newspaper, reported Wednesday that the IFC had agreed to take over $120 million in loans in a bid to settle ARM’s more expensive debt. Paunrana said the company is in discussions with the IFC on a term sheet and a full agreement is still a “work in progress.”

“Nobody just gives you 120 million dollars without conditions,” Paunrana said by phone from Tanzania, where ailing operations have hurt the group’s overall performance. “We are in discussions, it is not a facility, it is a term sheet. There are conditions attached to this.”

The main conditions include a return to profitability and getting an equity investor during the next nine to 12 months, he said. ARM’s focus is now on getting its Tanzanian plant fully operational, generating positive cashflow, as the company seeks to reduce the debt and refinance the balance, he said.

Ballooning Debt

The company is struggling under the weight of its ballooning debt -- 14.4 billion Kenya shillings ($142.8 million) at the end of 2017 -- and in June 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. ARM has been seeking an investor since October to help stem losses that more than doubled to 6.55 billion shillings last year.

Paunrana said earlier this week that ARM would convert 21.6 billion shillings owed by its Tanzanian unit, Maweni Limestone Ltd., into equity. The company didn’t provide for the impairment of the investment in its 2017 financials, according to auditors.

The business environment in Tanzania has improved “markedly” after coal supplies increased and cement retail prices went up, Paunrana said. ARM’s clinker plant in Tanga is operating at near full capacity and could supply Kenya with some of the cement-making ingredient, he said.

Tanzania was “very weak” in the past 18 months and a lost a number of key personnel because of the uncertainty, he said. ARM plans to rehire staff to strengthen its management.

“We are reviving the business, strengthening management and getting to a position where whenever we bring equity, it is at most favorable terms to the lenders and shareholders,” Paunrana said.

ARM shares were trading 8.8 percent higher by 11:51 a.m. on limited volume.

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