Agency cuts ARM credit rating as firm seeks more funding

ARM Cement’s chairman Rick Ashley (left) and CEO Pradeep Paunrana during a past investor meeting. FILE PHOTO | NMG 

By JAMES NGUNJIRI

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Summary

• Global Credit Ratings has downgraded ARM Cement ratings, citing liquidity pressure and funding constraints.
• GRC says that ARM continues to show substantial financial strain, but is in the process of negotiating fresh capital injection, as well as a long-term refinancing facility.
• The agency notes that ARM is currently engaging external advisors to investigate potential equity investors and other funding options, a process likely to be somewhat protracted.

South African-based Global Credit Ratings (GCR) has downgraded ARM Cement

ratings and placed the manufacturer on a rating “watch” signalling further review, citing liquidity pressure and funding constraints.

GCR’s notification said ARM continues to show substantial financial strain, but is in the process of negotiating fresh capital injection, as well as a long-term refinancing facility.

“GCR has today downgraded the national scale debt ratings for ARM Cement Limited to BB (KE) and B (KE) in the long-term and short-term respectively. Concurrently the Commercial Paper rating has been downgraded to B (KE). The ratings have been placed on rating watch and are valid until January 2018,” GCR said.

GCR added that it was initially expected that a refinancing agreement could be reached in July.

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However, it noted ARM is currently engaging external advisors to investigate potential equity investors and other funding options, a process likely to be somewhat protracted. Any additional funding flows will likely only be received in the second quarter of 2018.

“Accordingly, liquidity pressure and funding strain is likely to persist until a new funding arrangement is agreed. Positively, ARM has concluded an agreement for the sale of its non-cement businesses, which would allow it to reduce a portion of its debt,” said the rating firm.

ARM’s focus in 2016 was on completing the large investment by the UK development finance institution CDC.

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In the transaction, CDC invested $140 million (Sh14.4 billion) to purchase a 41.66 per cent stake in ARM, making it the single-largest shareholder.
The CDC investment has been critical in supporting the credit rating of ARM.

GCR said not only have the funds received helped ARM substantially de-gear the balance sheet (debt reduced to Sh13.2 billion in 2016 from Sh24.4 billion in 2015), but CDC has been instrumental in bolstering the management team and improving corporate governance.