Kenyan firm placed under administration owes two Nigerian Banks $8.8m

Nigerian banks Guaranty Trust Bank (GTBank) and United Bank for Africa (UBA) are among lenders that will seek to recoup monies owed to them by Kenya’s ARM Cement which has now been placed under administration. The company which is partly owned by UK’s CDC Group took a total loan of $8.8 million from the two Nigerian lenders.

Muniu Thoiti and George Weru of PricewaterhouseCoopers (PwC) took over the management of the cement maker on Friday in a last ditch effort to rescue the company which reported a loss of KSh6.5 billion ($64.56 million) in 2017. As at Friday, the company’s shares had fallen to Sh5.55 a piece from Sh90 in 2014. On Monday, the Capital Markets Authority (CMA) suspended the company’s shares from trading on the Nairobi Stock Exchange (NSE).

Administration functions as a rescue mechanism for insolvent companies, allowing them to keep running their business where they pay off their debts. This is in line with Kenya’s Insolvency Act of 2015, which gives companies going through financial turmoil an opportunity to put their acts together, including settlement of debts.

“The primary objective of administration is to enable an administrator, a licensed insolvency practitioner, to explore the possibility of rescuing the company either as a going concern or for achieving a better outcome for creditors than would likely be the case if the company were liquidated,” PwC said in the statement.

“The joint administrators are currently engaging all key stakeholders of the company to elicit their cooperation as they seek to achieve the best possible outcome to the current situation of the company.”

ARM Cement owes UBA Sh340.4 million (N 1.2 billion or $3.4 million) and GTBank Sh550 million (N1.97 billion or $5.5 million).

ARM had raised debt amounting to Sh14.4 billion as at last year. It comprised bank loans (Sh6.5 billion), Aureos income note (Sh1.4 billion), corporate bond (Sh1.03 billion), commercial papers (Sh771 million) and bank overdrafts (Sh4.5 billion).

The cement company borrowed from eight local banks as at last year including the Kenyan unit of UBA and GTBank, two of Nigeria’s largest banks.

ARM took a loan of Sh550 million from Guaranty Trust Bank, UBA Bank (Sh340.4 million), Sh4.6 billion from Africa Finance Corporation, Sh1.7 billion in loans and overdrafts from Stanbic Bank Kenya and Sh229 million from Barclays Bank of Kenya.

The cement maker’s subsidiary Maweni Limestone Limited and its Rwanda unit had also incurred huge debts from other lenders.

Both UBA and GTBank are also exposed in the $1.2 billion syndicated loan granted etisalat by a consortium of 13 Nigerian banks. GTBank had reported a Non-performing loan ratio (NPL) of 7.7 percent in FY 2017, which is above regulatory threshold of 5 percent on the back of its $138 million exposure to the etisalat (now 9mobile) loan. The Bank’s MD/CEO Segun Agbaje explained that the bank’s NPL would moderate to 4.6 percent if the 9mobile loan was excluded from the bank’s NPL ratio computation. The Bank has now provisioned for 65 percent of its exposure to the 9mobile loan.

UBA was also exposed to the 9mobile loan to the tune of $125 million but it said last year that it made a provision on loans. The Bank grew loans and advances to customers by 9.6 percent in the year that ended December 31, 2017 from to N1.65 trillion from N1.505 trillion in 2016. It also participated in a N200 billion loan to MTN Nigeria by 12 banks in the country.