Cement Moment: CDC Buys into ARM

ARM (Athi River Mining) Cement seems to have been grappling with a short-term debt burden. It was reported that an Indian firm Ultratech were interested in investing $125 million, a few weeks ago for a stake in the firm. But today’s results announced by ARM, which show a full year loss of Kshs 3.5 billion, 9blamed on an unrealised exchange loss  of Kshs 3.7 billion) also came with a notice that the CDC Group, the UK  government-owned development finance institution, has committed to invest Kshs 14 billion (~$140 million) for equity in the listed company.

CDC will become the largest shareholder in ARM, and the company will use $110 million of the new funding to reduce their short-term debt (payments stand at about $1.5 million per month) and which totaled $200 million at the end of 2015. ARM shares have lost 2/3 of their value, now at 30 after trading as high as 80 in 2013

A few days ago, CDC also announced an acquisition 10.7% of I&M Holdings, the parent group of I&M Bank. More detail here about ARM’s debt and fund-raising history, and when they kicked Bamburi, then a large shareholder, off their board.

Other Cement Companies

An Oxford Group report notes that The growth in (Kenya) construction activity has been a boon for producers, but the scope for further increases in the near term is sizeable, given that Kenya’s per-capita consumption remains well below that of other major economies on the continent. Annual per-capita demand for cement averages 100 kg, according to sector players, compared with 506 kg in Egypt and 230 kg in South Africa…However, the rise in domestic demand has not necessarily translated to a healthier balance sheet for the country’s producers. The average net profit margins for Kenya’s cement firms hit an all-time low of 11% last year, according to ARM Cement.

  • Bamburi: A recent investor note about Bamburi mentions that it’s shares have gained 25% in the last year and it increased its’ profit by 45% in an industry which recorded a decline in average net profits.Bamburi also has a generous dividend policy and has paid an increasing level of divided since 2011.
  • EAPCC East African Portland Cement is said to be trying to negotiate with the government to use some of their vast land holdings in Athi River / Kajiado area to restructure the company.
  • Dangote: Is still interested in investing in Kenya? Media reports say there’s a grinding plant in Kenya with others planned.
  • Savannah Cement completed a major plant upgrade to boost the firm’s production and efficiency.

Mining Brings More than Royalties & Taxes

Kwale Mineral Sands (a.k.a Base Titanium) is now being celebrated as Kenya’s most significant mining operation. According to a report released in Nairobi, the mine in Kwale will run for another 12 years contributing about $20 million annually to government through royalties and another $100 million to Kenya’s GDP, according to an Ernst & Young report that was commissioned to quantity the economic impact of the project .

The $310 million ongoing investments ($106M construction, $56M engineering & design, $41M equipment, $107M others) supports 3,432 jobs (642 at Base, 1,429 in supply chain, and 1,361 others). This is down from the 8,200 one-year jobs during the construction period in 2012 to 2013 but that impact has now stable at 4 indirect jobs for every 1 direct job at the mine. The workforce is 96% Kenyan, with 63% from Kwale, and the operation has just 38 expatriates (down from 65). This is in a county where many where many residents are subsistence farmers or squatters and Base is now leveraging on the Kwale county development plan to support schools, hospital, and agriculture including cotton farming with exports to Australia.

Ministry of Mining Cabinet Secretary, Dan Kazungu said that he wanted to see more world-class mines like Base, and that the government planned to have mining’s contribution to GDP go from the current level (less than 1%) to exceed 10% by year 2030. He said the cabinet passed a mining policy in April 2016, and that and that the mediated Mining Bill now awaits the president’s signature, after navigating the senate and national assembly.

Kenya Mining CS Dan Kazungu and Base Resources MD Tim CarstensHe said this years budget will approve an aerial geophysical aerial survey and that the government will also ask British geological societies to share the data they have had for decades on Kenya’s potential mines. He asked that, if you get a license from the ministry, “use it” - whether trading, exploring, mining – and try to create two or three more large mines like Base. He said that Kenyans could take part in the mining  sector without digging any rocks – as they could  offer training, consultancies, supplies, food, financial services, logistics, security etc. and that Kenya has applied to host the AU’s  African mineral development center in Nairobi.

There was also a nice Q&A session he was asked about the role of counties and tribunals in approving mining licences and the status of the Fluorspar mine in Elgeyo Marakwet. Unsaid in all this, is the love that Base Titanium has for the Mining Cabinet Secretary; unlike his predecessor who never visited the Kwale site and barely acknowledged the largest mining operation in Kenya.

Farewell Easy Taxi?

 It’s been reported that Easy Taxi are on their way out of Africa as a market, following a similar retreat in Asia, to focus on Latin America. They have been here for about two years, signing up operators in Nairobi, and later in Nakuru and Mombasa, with some good traction.

They have done this without attracting the attention that rival Uber does or drawing battles with local taxi drivers. Flying under the Uber radar may have also meant that Uber caught all the funding attention in the taxi hailing world, so even where Easy had a lead, all that was forgotten after Uber arrived in new markets..

Easy had formed partnerships with many Nairobi corporations, events and concerts, and even banks to finance their growing fleet of taxi drivers. The taxi market remains vibrant and there are rumors that other companies may be planning to takeover their operation. Easy Taxi Africa is a part of AIG (Africa Internet Group) which encompasses other locally familiar brands including  Jovago, Lamudi, Hello Food and Jumia.

Sidian Financing for Entrepreneurs

Some of the Sidian loan products for entrepreneurs include:

  • Retail business loans of Kshs 2 million to Kshs 10 million repayable over 5 years.
  • SME corporate loans of Kshs 10 million to Kshs 300 million, repayable over 8 years.
  • Chama Biashara loans – for members of chamas (investment groups) in which individual members can borrow up to Kshs 500,000 which are guaranteed by their groups.

Lady, #OwnTomorrow

  • Kilimo Plus Micro – for farmers to finance land preparation, inputs, machinery etc.
  • For individuals, there are both (i) emergency loans of up to Kshs 500,000 (repayable in one year) and (ii) check off loans up to Kshs 3 million for salaried employees (that are repayable over 6 years).
  • They also have other loans for medical sector entrepreneurs (MCF Medium) under which the medical assets  purchased can be used as collateral, for water service providers (Maji ni Maisha), for small (e.g. kiosk) entrepreneurs to buy business stocks (Jaza Stock Loan), and for tea farmers (chai loan).

$1 = Kshs 102

Easy Taix

Oil Pipeline, Economics & Politics

It’s been reported that the oil pipeline from Uganda is going to go through Tanzania, not Kenya. Two forgotten facts about the Uganda oil decision are that; (1) President Museveni of Uganda has been steadfast that he wanted to refine oil in Uganda, not export raw crude (2) Uganda’s oil has been said to be waxy or heavy. This means it would require complex heating to keep it flowing along a complex oil pipeline through the rift valleys and hills – to the coast of Kenya.

M7 poster 2

The cost, insecurity and difficulty of building infrastructure have been cited reasons that Uganda opted to go through Tanzania. Still Kenya has several LAPSSET projects on the cards including an oil pipeline to go to Lamu where there would be a new highway, railway, coal plant and modern, deep-sea port.

Pipeline Impact

Last year at the TDS Nairobi summit, during the 10th  Ministerial Conference (MC10) of the World Trade Organization (WTO), a session was held on local content in extractive (and oil) industries. Some interesting comments there included:

  • It is a legitimate objective for any resource rich country to try to maximize the value of its resources.
  • If a country puts restrictions on raw exports, it may distort the local economy; it creates artificial demand – and if it is not efficient, local related industries will not survive.
  • Kenya energy expert Patrick Obath suggested that Kenya, Uganda and South Sudan have to talk together and implement projects together for projects like the oil pipeline to be viable. That would also have to happen to get more value-addition from the oil in the countries e.g. can the countries plan to get fertilizer from oil?
  • With mining, you have 20 years of opportunity for local suppliers and jobs, but with an oil pipeline that’s only there in the beginning, then goes away once the pipeline is built (there wont be many local jobs after, and communities don’t get an economic boom from having an oil pipeline passing through their land..which may lead to some local frustration).

More on Kenya Pipeline:

oil tankers

  • The Kenya Pipeline Company is charged with transporting and storing of petroleum products.
  • A (presidential task force on parastatal reforms proposes the Treasury incorporate a holding company known as the Government Investment Corporation (GIC), into which Kenya Pipeline Company should be transferred to determine (its) intended privatization.
  • Meanwhile Kenya Pipeline is continuing with its projects including replacing the current Mombasa-Nairobi Pipeline.