September 2024
Update on HeidelbergCement acquisition of Italcementi 13 April 2016
HeidelbergCement released more detail on its plans to buy Italcementi last week. The main points were that Italcementi’s operations in Belgium will be sold, the Italcementi brand will be retained, its research and development (R&D) centre will assume responsibilities for the entire group and up to 260 job losses are expected in Bergamo. The integration plan is expected to be complete by 2020.
Following an update in HeidelbergCement’s preliminary financial results for 2015 in February 2016, this was more focused on the practicalities of taking over a company. Sales of assets in Belgium were expected from the moment the deal was announced in July 2015. Between them the two companies operate three of the country’s four cement plants, holding 73% of the market by cement production capacity. Selling up Italcementi’s Belgian subsidiary Compagnie des Ciments Belges will maintain the existing market balance. Once this is done, from a cement sector perspective, interaction from the European Commission on the deal should merely be a formality.
Interestingly, no plans to sell assets in the US were announced. This is more ambitious on HeidelbergCement’s part because the acquisition has far bigger implications in that country. Merging Italcementi’s Essroc subsidiary and HeidelbergCement’s Lehigh Hanson subsidiary will see HeidelbergCement become the new second largest cement producer in the US with around 16.4Mt/yr. LafargeHolcim had a relatively easy ride from the Federal Trade Commission (FTC) having to sell two integrated cement plants, two slag grinding plants and a series of terminals. As HeidelbergCement will become the second largest cement producer it seems unlikely that the FTC will be too demanding. However, post-acquisition the cement producer will own cement plants within 75 miles of each other in Pennsylvania and in Maryland and West Virginia. The FTC may take exception to this but perhaps HeidelbergCement is trying their luck to see if it can get away with it.
The decision to retain Italcementi’s i.Lab R&D centre in Bergamo, Italy raises questions about what will happen to the Heidelberg Technology Centre (HTC) in Leimen, Germany. The focus here is on making Bergamo the ‘product’ R&D division for the entire group. i.Lab was opened in early 2012 to fanfare, based in a building designed by architect Richard Meier and it cost Euro40m to build. How this fits with HeidelbergCement’s existing Global R&D team at the HTC remains to be seen.
Job losses of up to 260 personnel at Bergamo are regrettable but hardly unexpected. It may not be much comfort for any staff members facing redundancy but this figure is well below the figures bandied about in the media in late 2015 of first around 1000 and then nearer 500. Another 170 personnel will also be offered relocation packages taking the impact of the reorganisation up to about 400 of Italcementi’s 2500 workforce in Italy.
Looking at the wider situation with the acquisition this week, HeidelbergCement announced a record contract for Norcem, its Norwegian subsidiary, to supply 280,000t of cement over three years for an infrastructure project. Then, Carlo Pesenti, the chief executive officer of Italcementi, was reported making comments about the business’ expansion plans in Thailand and the Association of Southeast Asian Nations (ASEAN). Projects in Myanmar and Cambodia look likely once the acquisition is complete. Finally, the ratings agency Moody’s was drumming up attention for a market report by pointing out the implications for the multinational cement producers in India if a proposed rise in infrastructure spending gets approved. In summary HeidelbergCement and Italcementi are unlikely to benefit due to their southern Indian spread of assets and local production overcapacity.
HeidelbergCement may not be getting it all its own way but the acquisition of Italcementi remains on track so far. All eyes will be on how the US FTC responds to the deal.
Nine companies bid for Lafarge India assets 13 April 2016
India: LafargeHolcim has received nine non-binding offers for its subsidiary Lafarge India. The bidders include multinational cement producers CRH, HeidelbergCement and China Resources. Local companies which have made bids include JSW Infrastructure, Piramal Enterprises and Ramky Infrastructure, which have deals with private equity firms CVC Capital, Goldman Sachs Private Equity and Carlyle respectively. Blackstone, Baring Asia and CPPIB have also submitted a bid as part of a consortium. Bain Capital and Advent International have also submitted their bids individually, according to Business Standard.
Following a shortlisting and due diligence process a final bid will be selected. A final bidder is expected to be announced by the end of June 2016.
China: Courts have ordered Shandong Shanshui Cement Group to pay back its creditors US$372m, the company said in a statement reported by Reuters. Shandong Shanshui Cement said it was unlikely to be able to make the required payments due to financial troubles. The courts will now start to auction off the company’s assets.
Bond defaults by a subsidiary of Shanshui Cement Group had led creditors to seek legal redress. Shandong Shanshui Cement's statement to the Shanghai Clearing House described almost 100 lawsuits against the company. The total amount sought is around US$764m.
All Pakistan Cement Manufacturers Association say production capacity plans to grow by 10Mt by 2018 13 April 2016
Pakistan: The Pakistan cement industry plans to invest up to US$1bn towards production capacity growth of 10Mt/yr by 2018. The growth will be targeted at the growing real estate market and expected China Pakistan Economic Corridor (CPEC) projects said Mohammad Ali Tabba, chairman of the All Pakistan Cement Manufacturers Association (APCMA) in comments to the Business Recorder.
"Four companies have already announced their plans in this regard. Cherat Cement is going to do it from next year, and then Attock Cement, DG Khan Cement and Lucky Cement will materialise their plans," said Tabba.
He added that at present the country has a production capacity of 46Mt/yr, a demand of 38Mt/yr and a capacity utilisation rate of 80 – 85%. His argument for cement industry growth rests on the industry hitting this capacity utilisation rate. The last time a significant increase in industry capacity was made was in 2005 -2006 when it was increased from 17.9Mt/yr to 42.3Mt/yr in 2008 – 2009.
Saudi Arabia reported to have lifted cement export ban 13 April 2016
Saudi Arabia: Saudi Arabia has lifted a ban on exporting cement, the chief executive of Yanbu Cement has said to local press. Ahmed bin Abduh Zugail, who is also the deputy head of the Saudi national committee of cement companies, added that cement companies have welcomed the relaxation of the ban. However, full details of the new regulations are yet to be released by the Ministry of Commerce.
Local press reported in late November 2015 that government bodies were considering cutting the ban on cement exports. The ban was originally introduced in Saudi Arabia to keep prices down and production flowing for large infrastructure projects built using oil revenue.
Cambodia: Chip Mong Group has ordered three vertical roller mills from Gebr. Pfeiffer for a new cement production line in Touk Meas. The order comprises a MPS 3350 BK for coal, a MVR 5000 R-4 for raw material and a MVR 6000 C-6 for cement grinding. The cement mill will come equipped with a MultiDrive consisting of four drive modules. This drive system has an installed power of 7200kW to allow redundant operation.
The MVR 6000 C-6 cement mill will be the largest vertical roller mill in the Association of Southeast Asian Nations (ASEAN) region. It will be set up in cooperation with CITIC Heavy Industries. Delivery of the mills is scheduled to take place in the first quarter of 2017.
India: Dilip Gaur has replaced K K Maheshwari as the managing director of Grasim Industries, with effect from 1 April 2016. Maheshwari will remain on the board as a non-executive director.
Gaur was previously the deputy-managing director of Ultratech Cement. Before that he worked for Birla Copper, Alexandria Carbon Black and Pan Century Edible Oils. He also worked for over 20 years with Hindustan Unilever. Gaur holds a bachelor of engineering degree in chemicals and took the Advanced Management Program at Harvard, US.
Ratings agency says LafargeHolcim to benefit from Indian infrastructure spending growth 12 April 2016
India: Government plans to increase spending on infrastructure projects will benefit LafargeHolcim according to Moody's Investor Service. The second largest cement producer in India will gain from uneven regional demand, with a much larger scale and more prominent operations in northern India, where it sells almost 42% of its local cement volume.
LafargeHolcim and other European cement manufacturers with a presence in India are likely to benefit if the Indian government's plans to ramp up infrastructure spending happen in the next 12 to 18 months. The 2016 Union Budget contained plans to hike public infrastructure spending, especially on roads, which could revive stagnant cement demand in the country.
According to the government's 12th Five Year Plan (2012 - 17) investment in infrastructure should increase from 7.6% of gross domestic product (GDP) in 2014 to 9% in 2017. However, cement demand for government-funded projects has been weak in the last four years with many construction schemes delayed or put on hold. As a result, while infrastructure investment will be a key growth driver, the timing of such investment remains uncertain.
However, Moody’s also noted that European multinational cement producers based in the south of the country with limited geographical spread would be more exposed to local overcapacity in this region. This included HeidelbergCement, Italcementi and CRH.
Vietnam: Prime Minister Nguyen Xuan Phuc has agreed to add the Thaicement Ha Tien plant in Kien Giang to a portfolio of projects to be invested in the 2011-2020 period with a vision to 2030. The cement plant will have a production capacity of 4.5Mt/yr.
Nguyen has assigned the Ministry of Construction and People’s Committee of Kien Giang province to conduct a survey and exploration of limestone and clay deposits and present it to the National Mineral Reserves Councils for approval before granting an investment license. He also requested the relevant agencies to assess the financial capacity of the investor, which must be able to provide at least 20% of the project’s total investment under current regulations.
The Ministry of Construction has forecast that Vietnam's sales of cement and clinker will rise by 4 - 7% year-on-year to up to 77Mt in 2016 despite economic problems.
Indonesia: State-owned cement producer Semen Baturaja has received a US$115m bank loan to build a new cement plant in Sumatra. The plant will have a cement production capacity of 1.85Mt/yr and it will be operational by June 2017. The project is expected to cost US$252m, according to Investor Daily. The plant was originally announced in 2014.