British fund writes off Sh14bn investment in ARM Cement

British sovereign wealth fund CDC Group has written off 97.4 percent of its Sh14.6 billion equity investment in ARM Cement #ticker:ARM, which collapsed under a load of debt.

The institutional investor has disclosed that it now values its capital commitment in the Kenyan cement manufacturer at just £2.8 million (Sh372 million).

This is down from the $144 million (Sh14.6 billion) it spent to acquire a 42 percent stake in the company whose assets are now being sold in a bankruptcy process handled by PricewaterhouseCoopers (PwC).

It is unlikely that any funds will be left over to be distributed to ARM’s shareholders, PwC has said.

The business advisory firm noted that most of the proceeds from ARM’s asset sales would be used to compensate secured banks and other creditors.

CDC’s losses would have been larger if it had accepted ARM’s request to provide additional capital in the months leading to August 2018 when it was placed under administration after it defaulted on bankers and bondholders.

CDC’s records show that ARM was its biggest outstanding direct investment in Kenya in recent years, underlining the impact of the firm’s collapse in the investor’s local portfolio.

The UK fund’s next largest direct investment in Malindi Solar Project at Sh5.2 billion, I & M Holdings (Sh5.1 billion), Africa Logistics Properties (Sh2.5 billion) and Garden City (Sh2.5 billion).

CDC’s 10.1 percent stake in I & M, acquired in 2016, is currently valued in the market at about Sh4.1 billion. The UK fund was issued with new shares in ARM and its cash investment was used to pay some of the cement maker’s debt.

“In the short-term, our investment will be used to repay the company’s debt and improve its financial strength,” CDC said when it announced its purchase of ARM shares.

“This will allow it to focus on plans to improve its current operations and build new capacity.”