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Dangote Enters Talks to Acquire Kenya’s ARM Cement

Dangote

Africa’s largest cement firm, Dangote Cement, could enter the Kenyan and Rwandan market through buying out troubled Athi River Mining (ARM) Cement before mid-next year, which will see it control the region’s cement market.

The buyout, if successful, will supersede the Nigerian cement maker’s earlier plans of entering the region constructing two factories in Rwanda, three in Dar es Salaam, one in Burundi and another in Jinja, Uganda.

It had also planned to start producing cement in Kenya through its Kitui-based plant, with an annual production capacity of three million tonnes.

“We are looking at listing on the London Stock Exchange. Before then, we are consolidating our cement business. This has seen us increase capacity in various markets.

“We are also carrying out a number of acquisitions before the initial public offering and currently, there is a cement company with operations in Tanzania, Kenya and Rwanda and we are talking to them to see if we can take them over,” Dangote Group chairman Aliko Dangote told Bloomberg.

ARM was placed under receivership in August by Nigeria’s United Bank of Africa Group over a $3.5 million loan; now Dangote Cement says it is already in talks to acquire the troubled cement maker.

Dangote is bidding against three other African cement operators — LafargeHolcim, Heidelberg Cement AG and Titan Cement Co. SA of Greece.

The region’s cement market is dominated by LafargeHolcim at 27 per cent and Tororo Cement at 21 per cent. ARM held 15 per cent before it was placed under receivership.

Dangote will now topple LafargeHolcim as the largest producer of cement using economies of scale to set lower prices that in turn will grow its market share and also its total installed capacity in Kenya, Ethiopia, Rwanda and Tanzania.

In Africa, LafargeHolcim is the largest producer, with a capcity of 50 million tonnes a year, followed closely by Dangote at 47 million tonnes. Kenya accounts for 53.2 per cent of the 21.1 million tonne installed capacity in the region, followed by Tanzania with an annual installed capacity of 8.3 million tonnes against the current annual demand of 4.3 million tonnes.

Cleaning house

Last Monday, ARM administrators PricewaterhouseCoopers wrote off $213 million in bad loans that the company advanced to its Tanzanian subsidiary, Maweni Limestone Ltd, shrinking the company’s assets by 61 per cent and taking it to a negative equity position.

The decision to act on the long-hidden loan means ARM is now worth even less than previously stated, with only $142 million in assets compared with $368 million in December 2017, making it a prime target for any buyout deal.

“In addition, in the period between January 1 and August 31, 2018, a large intercompany receivable owed from Maweni was written off, causing the large movement in administrative expenses in this period,” PwC says in its latest report on the firm.

PwC has also appointed Knight Frank Ltd to undertake a comprehensive valuation of the company’s hard assets in a bid to ascertain its true financial position.

Before it was put under receivership, ARM had posted a loss of $35 million in 2017, becoming one of the regional cement firms to have sunk deep into the red, having posted a loss of $28 million in 2016 and $28.9 million in 2015.

The troubled cement maker had bonds and commercial paper, with its total borrowings standing at $144 million as at the end of last year.

The debt comprised $65 million in bank loans, a $14 million Aureos income note, a $10.3 million corporate bond, $7.71 million in commercial paper and $45 million in bank overdrafts.

If the sale deal goes through, Dangote will see its Tanzanian operation receive a boost as it will be taking over ARM’s clinker plant in Tanga, a cement grinding plant in Dar es Salaam and an incomplete cement grinding plant in Tanga.

ARM’s Tanzania operations has an installed capacity of 1.6 million tonnes a year.

In Kenya, it will acquire the firm’s operations, which have an annual installed capacity of one million tonnes. In Rwanda, ARM’s Kigali Cement plants installed capacity is 100,000 tonnes annually. It is Rwanda’s second largest plant.

In the third quarter of this year, Dangote pumped more than $20.3 million into its Tanzania operations by installing a gas plant to fire up its Mtwara factory.

In August, Dangote Cement Tanzania signed an agreement with the Tanzania Petroleum Development Corporation for the supply of gas and the plant has, since September, been running on gas turbine, capable of generating 25MW.

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