ARM seeks Sh10.7bn in private bond

ARM Cement is set to raise up to $105 million (Sh10.7 billion) in debt funding from private investors, increasing its target from the previous Sh7 billion.

The cement manufacturer is now raising the larger amount through a privately placed five-year bond whose offer opened on Thursday last week and runs until December 2.

The cash will be used to retire expensive short-term debts that saw ARM’s finance costs more than triple to Sh1.1 billion in the nine months ended September.

“The proceeds from the five-year bond will be used to replace existing short term borrowings. There is no increase in total debt only refinancing existing short-term debt,” said Pradeep Paunrana, chief executive of ARM Cement.

Mr Paunrana in August told the Business Daily that the company would issue a Sh7 billion bond, with the modified target seen to reflect new developments since then.

ARM now plans to raise $90 million (Sh9.2 billion) from the debt securities, with an option to take in an extra $15 million (Sh1.5 billion) should the original amount be oversubscribed.

The debt instruments will not be listed on the Nairobi Securities Exchange like most corporate bonds of publicly traded firms. They are instead being sold to cash-rich investors who will hold them privately.

“The bond issue is suited for investment fund managers. A public bond is not necessary for such fund managers with large portfolio investments,” Mr Paunrana said.

READ: ARM halts Kitui plant plans to sort out debts

The fundraising is part of ARM’s debt restructuring strategy after the cement manufacturer appointed Barclays Bank of Kenya, CfC Stanbic Bank and Standard Chartered Bank Kenya to aise it on the reorganisation.

Minimum subscription

The bond will be issued in Kenya Shillings as well as the US dollar and comes in both fixed and floating rates. The minimum subscription has been set at Sh1 million in local currency or $100,000 for the greenback.

Higher finance costs and forex losses brought by increased borrowing and weakening of the shilling saw ARM make a net loss of Sh469 million in the nine months ended September, reversing a net profit of Sh1.1 billion a year earlier.

Sales increased seven per cent to Sh11.7 billion primarily driven by the Tanzanian market and fertiliser sales in Kenya.

The coupon rate for the local currency notes will be tied to the government bonds yield plus a margin of 1.2 percentage points for fixed rate notes while the floating rate will be pegged on the 182-day T-bill rate and a margin of 2.5 percentage points.

The dollar component attracts a coupon rate based on the six-month London Interbank Offer Rate (LIBOR) and a margin of 5.5 percentage points.
ARM’s share price has declined 55 per cent since the beginning of the year to trade at S9.

The drop in share price adds another challenge to the cement firm that in 2012 took a convertible loan of $50 million (Sh5.1 billion) from Lagos-based Africa Finance Corporation (AFC) in 2012.

ARM has preferred to repay the debt by issuing shares to AFC but the current share price is substantially below the strike price of $0.64 (Sh65) per share.

AFC has the option to convert the debt into shares any time before September 2018 and is likely to ask for cash payment if the stock remains below the conversion price.

SOURCE: BUSINESS DAILY