The Attorney-General is reviewing terms of the buyout of an extra 29.2 percent stake in East African Portland Cement (EAPC) by Tanzanian tycoon to guard against loss of strategic assets and rights of existing shareholders.
The government’s chief legal adviser will also seek to establish if the rights of the Treasury and the National Social Security Fund (NSSF) were breached and denied the two a chance to buy the stake.
The planned sale of the EAPC shares to Tanzanian tycoon Edhah Abdallah Munif has sparked uproar in Parliament over the discounted cost of the deal at half the cement maker’s stock price.
Legislators have queried why shares in the asset-rich firm were being sold at a price that does not reflect the book value of Sh20.4 billion and the market valuation of the cement maker.
Mr Munif is buying 26.32 million EAPC shares from Swiss multinational Holcim using an investment firm known as Kalahari Cement Limited at Sh27.30 each, valuing the deal at Sh718.7 million and against market value of Sh5.13 billion.
The office of the Attorney General on Thursday told Parliament that it will be reviewing the share purchase agreement and the firm’s articles of incorporation.
It wants to establish if the Treasury and NSSF were denied the chance to buy the shares through pre-emptive rights.
Under preemptive rights, the existing shareholders are given the first opportunity to purchase an asset or shares before they are sold to another party.
The NSSF and the Treasury own 27 percent and 25.3 percent of Portland cement respectively.
The Attorney General will also seek to establish if the terms of the deal could lower the intrinsic value of EAPC.
“Once the office is provided with the transaction documents…we shall be able to advice whether the terms protects citizens from exploitation and loss of strategic assets,” the Solicitor General Shadrack Mose told the National Assembly’s committee on Trade and Industry.
“The sale of EAPC shares should be undertaken in accordance with the Companies Act, articles of incorporation including the existing shareholders approval and rights of refusal if applicable,” said Mr Mose in reference to the pre-emptive rights.
On Thursday, a Treasury representative told the committee that they learnt of the deal through a press notice announcing Kalahari Cement’s intention to buy the 29.2 percent stake.
The deal comes months after Munif’s firm, Amsons Group, completed the full acquisition of Bamburi Cement in December for Sh23.6 billion, cementing its hold on Kenya’s cement market.
With Bamburi Cement already owning 12.5 percent of EAPC, he will emerge as the single largest shareholder of the Athi River-based company with a 41.75 percent stake.
The ownership will effectively give companies controlled by Mr Munif board-level influence and muscle to access strategic information in two of Kenya’s top cement firms that have a combined share of 31 percent of the country’s production capacity of 14.5 million tonnes per annum.
EAPC board on Thursday told Parliament that that deal would give Kalahari powers to dominate the ceent maker’s voting rights and strategic direction.
“It would alter the dynamics of board deliberations and voting, moving from a structure with several significant, distinct shareholders to one where a single controlling interest holds a dominant position,” said Richard Mbithi, the chair of EAPC.
“The alignment between the NSSF and the Treasury will become even more critical to balance the consolidated power.”
In the past year, the EAPC share price has gone up by over 300 percent from Sh7.2 a unit, making it one of the top performers at the bourse in the period.
At the prevailing price, the company has a market capitalisation (valuation) of Sh5.13 billion, while Kalahari’s purchase price values it at Sh2.46 billion.
In its disclosures, Kalahari did not give details on how it arrived at the price it will pay Holcim in the negotiated transaction.
Both valuations are, however, well below EAPC’s net asset or book value of Sh20.4 billion, as per the company’s latest audited financial results dated June 2024. The company’s total assets stood at Sh35.19 billion, and total liabilities at Sh14.79 billion.
This shows that Kalahari is acquiring the 29.2 percent stake cheaply, and that the company remains undervalued at the Nairobi Securities Exchange (NSE).
The bulk of the company’s assets (Sh21.23 billion) is held in the form of investment properties, largely freehold land (4,626 acres) held under long-term lease arrangements.
The undervaluation at the market also indicates that investors may be factoring in the illiquid nature of the bulk of the firm’s land assets.
The company has had plans to sell off part of its expansive land holdings to raise Sh10 billion towards working capital for its business, after winning a court battle in 2023 against squatters who had occupied the land for about 10 years.
Members of the committee pressed the Competition Authority of Kenya (CAK) and the Capital Markets Authority (CMA) to reject the offer price, arguing that the transaction may not be in the public’s best interest in the long term.
The State and the National Social Security Fund (NSSF) have a combined stake of 52 percent in EAPC.
CMA Chief Executive Wycliffe Shamiah said the regulator was powerless in dictating the offer price, arguing it reflects an agreement between buyer and seller.
