From small family business to major cement company

“Part of that growth is attributed to… being listed on the Nairobi Securities Exchange (NSE) [and] being able to access capital through the capital markets. We have issued many different instruments for raising money such as a listed bond, an equity bond [and] convertible bond from African Finance Corporation out of Lagos, [Nigeria].”

ARM started with a private placement in 1994 and listed on the NSE in 1997. Today it is one of the top 10 largest companies in Kenya by market capitalisation with institutional shareholders from New York, London, Singapore, Johannesburg and other major financial centres.

“I think this is a good demonstration for other family businesses that you don’t have to own 100% of what you do. My father, when he started, was only a 25% shareholder of ARM in the 1970s. He had borrowed money from friends and relatives and given them shares in the company,” says Paunrana.

“When I joined the company we carried on in the same principle that we wanted to grow the company and in order to [do that] we needed continued investments. In the cement business, the scale of investment was so much more that we had to bring in more outside shareholders.”

Typically, Paunrana says, commercial banks in the region are not geared towards lending for long term growth and the few existing development financing institutions are not able to cater for small businesses.

“Access to capital is one of the main stumbling blocks or barriers to growth in Africa. Our people have great ideas, good businesses but they lack the capital to grow and they lack sometimes the know-how on capital raising. We have a lot of handicaps and the one way we can overcome that is by use of capital markets.”

Good corporate governance

While some families might opt to fully own their businesses and therefore stifle growth for fear of getting kicked out of management by outside shareholders, Paunrana says business owners should separate management from ownership and control. The emphasis, he says, should be on good corporate governance.

“It does not have to be family driven,” he offers. “If you are going to resort to other people’s money for your growth, whether it is as shares or loans, you have a responsibility to those people. You have to change your perspective… growing the wealth for everybody means you are growing the wealth for yourself also.”

Paunrana is one of Kenya’s billionaire CEOs alongside Equity Bank’s James Mwangi and Scangroup’s Bharat Thakrar who have also been instrumental in the transformation, growth and expansion of their listed companies.

Paunrana, who joined the company in 1984 after graduating with an MBA from New York University Stern School of Business, is largely credited for ARM Cement’s success. During his tenure he has transformed a small, family-run producer of agricultural lime into a major, publicly-listed cement company with regional operations.

In 2010 Paunrana was awarded the Africa Business Leader of Innovation by the Africa Investor Group. He is the current vice chairman of the Kenya Association of Manufacturers and is set to take over as chairman in June this year.

Paunrana notes that while a company can do everything “right” by serving market needs with the right quality service and price, the most important factor in a company’s success is its people. He adds that engaging with society such as through ARM’s Rhino Cement Foundation, which makes social investments in health, education and the environment, is key to developing African economies and empowering future consumers.

“Our people are truly part of the company. They have a mission… not just to make profits and produce cement but to help build Africa. It’s not just about cement; it’s the people of Africa that we need to build. We need to empower [people and] make sure that we are instruments turning African countries into middle developed economies. Just imagine 40m people in Kenya all having a daily disposable income of $10.”