Portland Cement bets on $250m land deal to turn around fortunes
Tuesday November 10 2020
Workers load bags of cement at East Africa Portland Cement at Athi River factory. The firm is in dire need of capital injection. PHOTO | FILE | NMG
The board of the East African Portland Cement Company (EAPCC) has approved a Ksh25 billion ($250 million) recovery plan for the cash strapped cement maker, and are hoping to revive the company’s operations in three years.
The funds will be raised from the sale of non-core assets (land), the only revenue source, with financiers put off by the fact that Kenya Commercial Bank had attached a debenture to all the company’s assets in a demand for the repayment of an outstanding Ksh6 billion ($60 million) debt.
The financing costs associated with KCB’s loan, which has been reclassified as current liability and payable within 12 months, are estimated at Ksh600 million ($6 million) per annum, with the figure varying constantly depending with the penalties and interests charged every year.
EAPCC which has operations in Kenya and Uganda holds fixed assets, recorded in the balance sheet at the price at which they were purchased, amounting to Ksh32.76 billion ($327.6 million).
“On a short and medium-term basis, we are looking at the selling of land as the only source of financing since KCB has attached a debenture over all the assets of the company so trying to get another financier becomes a problem because of securitisation. So immediately we are done with KCB, we will be able to look at other capital lines because now at least the financiers will be able to see that all the assets are free,” said Stephen Nthei, the company’s acting chief executive in an interview with The EastAfrican this past last week.
“So the strategy is to sell land, pay off the loan and use the balance as working capital. This is a process which started late last year and it is only that it has been slow because of the Covid-19 issue but we have got quite a number of proposals which we are working on. The target is to reduce the finance costs which is about Ksh600 million per year, of course it is a number which changes here and there because of the penalties and interests. That is what we want to save by clearing our indebtedness with KCB.
A debenture is a document that grants lenders a charge over a borrower’s assets, giving them a means of collecting debt if the borrower defaults.
EAPCC is in dire need of fresh capital injection to pay off creditors, suppliers, workers’ terminal benefits, refurbish manufacturing plant operating at 20 percent capacity and shore up its depleted working capital that stood at negative Ksh13.82 billion ($138.2 million) on June 30 2020.
EAPCC made a net loss of Ksh2.76 billion ($27.6 million) during the financial year ended June 30 2020 compared with last year’s 3.36 billion ($33.6 million), according to its audited financial statements. The turnaround plan which was approved during an Extraordinary General Meeting late last year involves significant reduction of the workforce, 40 percent pay cut for the remaining workers and conversion of the contracts of permanent and pensionable employees into contracts.
The plan also involves cleaning up of the company’s balance sheet by paying off outstanding short term, liabilities and strengthening the amount of capital available for funding day to-day operations.
The EastAfrican has learnt that the EAPCC has so far trimmed its workforce from 1,500 to around 530 of which 270 of the remaining workers who are on permanent and pensionable terms will have their contracts reviewed and converted into contracts, thereby saving the company an estimated Ksh240 million per annum in staff costs.
“We are on the last leg of that which will affect the financial performance of this financial year. You know there is the reduction of the physical number of people and also the reduction in earnings per person that was also reduced substantially by more than 40 percent per person. The board came up with a new salary structure and a new organization structure,” said Nthei.
“Basically what has happened is that the board has come up with a strategic thematic approach into turning around the company. This strategy is premised on a number of thematic areas. One of the thematic areas is the reduction of manpower cost to realign with the current level of productivity because overheads, both administrative and cost of production, was very high.”
EAPCC is 27 percent owned by the National Social Security Fund (NSSF) and the government of Kenya through the National Treasury (25.3 percent).
Others are Bamburi Cement Ltd (12.5 percent), Associated International Cement (14.6 percent) and Cementia Holding (14.6 percent)