CDC Group’s stake in ARM shrinks by $121 million (Kenya)

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British investment fund CDC Group’s Sh14 billion investment in ARM Cement  has dropped to a market value of Sh2.1 billion as investors continue to react to the Nairobi Securities Exchange-listed firm’s financial challenges.

The firm’s share price fell to a new low of Sh6.05 yesterday after a steady decline from highs of Sh90 in August 2014.

This values the entire company at Sh5.8 billion, a major discount to the last published book value of Sh26.3 billion, indicating investors’ jitters over its continued losses and additional capital raising plans.

CDC and other long-term shareholders could ride out the current paper losses but the collapse of ARM’s share price signals that the institutional investor paid a premium for its 41.6 per cent stake.

The cement manufacturer was trading at Sh32 in August 2016 when CDC’s investment was approved, indicating that the development finance institution paid a premium of 25 per cent at the time.

ARM has warned investors that its net earnings for the year ended December will fall by at least 25 per cent from Sh2.8 billion a year earlier. The deeper losses comes after the company announced asset sales and plans to raise more funds from selling new shares in what will further dilute existing shareholders.

The manufacturer is yet to publish its results for the year ended December, which will give investors an update on the depth of its capital needs.

ARM has moved to sell its non-cement businesses including fertiliser production in transactions projected to raise at least $16 million (Sh1.6 billion).

The company has not specified how much it is looking to raise from a new shareholder and how far the talks have gone.

ARM’s challenges can be traced to a heavy reliance on debt to fund its aggressive expansion in the local and regional market. It used some of the CDC funds to retire part of its debt but continued losses have denied it financial flexibility.