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The Nairobian

Portland Cement seeks debt-free expansion with Sh9b land sale

Financial Standard

By Macharia Kamau | Oct 14, 2024

East African Portland Cement (EAPC) will plough back the proceeds of the sale of its idle land in Athi River to double its cement production capacity over the next four years, seeking to avoid taking any debt.

The firm said it has tapped FLSmidth to undertake a comprehensive technical audit of its plant, which will assess how to maximise the plant’s capacity and inform the design and cost of a new one.

The Danish firm supplied over 70 per cent of the plant’s machinery.

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EAPC Acting Managing Director Mohamed Osman said the sale of some of its land is expected to raise about Sh9 billion.

Some of the money, which has already been realised, was spent on refurbishing the plant earlier this year.

This has enabled the firm to double its production capacity. The firm said previously it planned to sell 1,907 acres of land to recapitalise the business.

“We have been able to push the regularisation of land that had been occupied by the local community, who we gave the first right of purchase, and this has enabled us to generate cash that has helped us undertake plant refurbishment,” said Mr Osman.

“We are still pushing to generate more cash flow. By the exit of the whole programme, we expect to realise an exit value of Sh5.4 billion from the sale of land to the local community. We are also disposing of other parcels of land adjacent to this, which we anticipate to generate Sh3.5 billion.

“The consolidated pool of that cash is what is expected to reposition the factory and grow capacity and sustain this business even as we go into the motion of developing the new integrated cement plant.”

Mr Osman added that the firm is moving away from holding large tracts of land, which not only attract squatters but also wealthy and well-connected land grabbers.

“We want to derisk from holding expansive properties, which have the risk of being encroached on. We want to realise exit value and invest in putting up a new integrated cement plant,” he said, adding after cleaning up and disposing of the land that has been in the hands of squatters, it will work with consultants to exit its land holding in Athi River.

“The next phase will involve liquidating the non-core assets. We have been working with the people, and now the question is what we want to do with this land. What we want to do is develop it into a product and put it into the market so that we can fetch sufficient cash flow to then put up a modern integrated cement plant.”

EPC plans to reinvest the proceeds of the sale of land to scale up its current plant’s clinker production capacity from 1,680 tonnes to 2,500 tonnes daily and eventually develop a new integrated cement plant with a capacity of 5,000 tonnes.

The two plants producing 7,500 tonnes of clinker every day would give the company the ability to produce 15,000 tonnes of cement daily.

It plans to undertake the developments largely debt-free. The firm has in the past struggled with what it said have been expensive loans, which nearly saw some of its assets auctioned as the lender tried to recover the debt.

Mr Osman noted that the expensive loans, a bloated workforce, and inefficient operations are among the factors that have been a drag for the firm and nearly sunk it. In addition to retiring the Sh6.8 billion in debt from KCB, it has more than halved its workforce costs through restructuring.

Perhaps taking caution from past experiences, EAPC is now wary of borrowing and says it will use internally-generated funds in its expansion.

“We can take an expansion prorgramme that can be internally funded. There is an opportunity for the business to grow and expand without any single borrowing but to fundraise internally all the cash required for expansion,” he said.

The audit by FLSmidth will also look at the reserves of raw materials that it has and inform whether it needs to acquire more land that has adequate reserves.

“Part of the work by the technical audit is to establish the deposit reserves, how long they can last and what strategic acquisitions we can do for strategic reserves and where,” said Mr Osman.

“The output of the report will give us an investment plan so that we have a guided application of whatever cash flow that we will need for purposes of investment. This is the first leg in repositioning the business, which is basically exhausting capacity and technology to upgrade the potential of the installed plant.”

“Our goal is to ensure the country does not slip into a net importer position, even with the current uncertainty affecting other players in the industry.”

In addition to technological upgrades, the company is seeking to optimise energy consumption through more sustainable solutions.

“Some of our equipment was installed years ago, and a lot has changed, especially with the rising cost of power. We’re looking at adopting more energy-saving equipment, including exploring alternatives to coal like macadamia husks and other agricultural waste,” he said.