Inside Politics

It’s end of the road for ARM as winding up process starts

Thursday, May 6th, 2021 00:00 |
ARM cement.

Steve Umidha @UmidhaSteve

The long-running problems at cement maker Athi River Mining (ARM) will come to an end later this year after its administrators reached a dead end in their pursuit to revive the firm’s operations.

As a result, joint administrators picked by PricewaterhouseCoopers (PwC), has recommended that the firm be liquidated on the understanding it may not be able to settle its creditors in full.

“The administrators are working towards completing the affairs of the administration of the company by September 30, to facilitate the transition into liquidation,” said George Weru in a signed letter dated April 19.

Liquidation is often a suitable course for insolvent businesses with no prospects of recovery as the business has run out of cash and is therefore unable to fulfil liabilities, including repaying outstanding creditors.

Liquidation is a formal insolvency procedure in which a company is brought to an end and all of its assets settled and the proceeds from the sale of assets is used to repay creditors.

The company will also be removed from the Register of Companies and in the case of ARM also de-listed from trading at the Nairobi Securities Exchange (NSE).

Trouble at the cement manufacturer dates back to 2018 when reports emerged that the company and its subsidiaries were experiencing financial challenges meaning they were not able to fulfil certain obligations to creditors.

This saw debtors pounce on what was left of the then Kenya’s second-largest cement maker, after they took control of the firm seeking to recover Sh15 billion owed to them.

The firm’s financial woes worsened which led to the firm being put under administration by the United Bank of Africa (UBA) over loan default on August 17, 2018. 

Its operations in Kenya were sold to National Cement in October 2019. China-based Huaxin Cement acquired Tanzanian subsidiary Maweni Limestone in May 2020.

Early this year, the administrators received approval from Rwanda Development Board’s Registrar-General to commence liquidation of Kigali Cement.

This was the work of joint administrators procured from PwC, George Weru and Muniu Thoithi, who were tasked to help the firm reach harmonious resolutions with creditors to settle ARM’s $284 million (Sh30.39 billion) in debts owed to creditors in Kenya, $170 million (Sh18.19 billion), Tanzania $110 million (Sh11.77 billion) and Rwanda $4 million (Sh428 million).

The two administrators last year managed to sell its flagship Kenyan business to National Cement Company for about $50 million (Sh5.35 billion), another Kenyan cement producer and a family-owned conglomerate run and operated by Devki Group. 

“Considering that material assets and interests of the company are in the final stages of being disposed and further that, based on realisations, it is unlikely that the creditors of the company will be settled in full, the only available exit option from the administration process is to transition the company into liquidation,” said Weru.

The administrators are also working to unlock various retention amounts relating to the Kenya Transaction totalling to $4.3 million (Sh460.10 million), mainly in respect of contested tax claims for distribution to its secured creditors.

The secured creditors of ARM are hoping recover between 34 per cent and 70 per cent while unsecured creditors are aiming to recuperate between 1.8 per cent and 6.5 per cent from the sale of the company’s assets including those held by its subsidiaries.

Final outcome to the respective creditor groups, according to the joint administrators is largely dependent on the resolution of the Tanzania Revenue Authority (TRA) CGT matter and the pending retentions in relation to the Kenya Transaction – the higher recoveries of 70 per cent and 6.5 per cent would only be achieved if the “TRA claim and Kenya retentions are resolved successfully.”

“We understand, from discussions with our tax advisors and tax lawyers in Tanzania, that it is likely to take 6 to 12 months for the TRAB to determine the matter.

Whilst we cannot predict the outcome at the TRAB, we strongly believe that we have a strong basis in law to obtain a favourable ruling,” reads the signed statement by Weru.

More on Inside Politics