ARM Tanzania assets sale raises Sh40 billion surplus

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 Sh40.6 billion that was transferred to Kenya.

In Kenya, 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 Sh238 billion.

The amount was more than enough to settle all the claims totalling Sh17.4 billion due to Maweni’s creditors including Sh1.76 million which was due to the Tanzanian Revenue Authority.

“Over $20 million (Sh46 billion) 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 Sh100 billion.

Despite the surplus cash from Maweni, Kenyan creditors suffered substantial losses in the liquidation of the cement manufacturer.

Lenders and unsecured creditors lost Sh230 billion in the process while shareholders were completely wiped out.

Unsecured creditors, who laid an aggregate claim of Sh180 billion 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 Sh99 billion out of their claims totalling Sh160 billion.

Preferential creditors, which have priority in being paid in bankruptcies, were compensated in full at Sh6.5billion.

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 Sh1.82 billion, private lender Aerous at Sh30 billion and Stanbic Bank at Sh20billion. The cement maker’s former employees were also owed salary arrears worth Sh600 million.

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 Sh280 billion in debt and had negative equity of Sh40.8 billion at the time.

The move into administration ushered out its long-serving chief executive Pradeep Paunrana, whose family founded the company in 1974.

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