ARM of Kenya Sees Return to Profit Only When Currencies Gain

  • Company's Kenyan, Tanzanian interests hit by currency declines
  • Plans to raise at least $90 million in five-year notes

ARM Cement Ltd., East Africa’s second-biggest producer of the building material by market value, said it may return to full-year profit if the Kenyan and Tanzanian currencies strengthen against the dollar.

The company, based in Kenya’s capital, Nairobi, and with operations in both nations, reported a loss of 355.8 million Kenyan shillings ($3.5 million) in the six months through June after an unrealized foreign-exchange loss of 1.4 billion shillings. The Kenyan and Tanzanian currencies depreciated by 8.7 percent and 14.7 percent respectively in the first half of 2015.

“Full-year net profit will only swing back with appreciation of the local currencies,” ARM General Manager for Finance Andrew Siundu said in an e-mailed response to questions. He said the unrealized foreign-exchange loss wasn’t a cash loss and the outlook for full-year earnings “remains very strong” because it’s using domestically manufactured clinker.

Kenya’s shilling has extended its loss to 11.4 percent so far this year as foreign-exchange inflows declined on falling earnings from tourism, the country’s second-biggest earner, while the Tanzanian unit is now 19 percent weaker, according to data compiled by Bloomberg.

ARM’s net income gained 11 percent to 1.49 billion shillings last year. The company plans to raise at least $90 million in five-year notes in shillings and other currencies, Siundu said. It has an option to take up an additional $15 million in a private placement.

Flexible Pricing

The bonds will have flexible pricing options; a fixed rate pegged on five-year government debt yields plus a 120 basis-point margin or a floating rate based on the 182-day Treasury-bill margin, and an additional 250 basis points with a floor of 12 percent and a 16.5 percent cap.

The proceeds of the bond will refinance short-term loans, Siundu said, which have been invested in increasing clinker-based cement production capacity to 2.6 million metric tons. The company seeks to nearly double production capacity to 5 million tons by 2020, ARM’s Deputy Managing Director Surendra Bhatia said in a March interview. A $150 million debt stock would be cleared within five years, he said.

ARM shares surged 9 percent to 39 shillings at 11:22 a.m. in Nairobi, their biggest intraday gain in a month.

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