Displaying items by tag: Divestments

Turkey: Ferpa İnşaat has acquired Çimsa Çimento’s 1Mt/yr Kayseri and 1.2Mt/yr Niğde integrated cement plants and Ankara grinding plant, as well as ready-mix concrete assets in Aksaray, Ambar, Basakpinar, Cirgalan, Ereğli, Nevsehir and Kahramanmaras. Reuters News has reported the pre-tax value of the deal as US$110m.

Zimbabwe: Holcim subsidiary Associated International Cement has entered into a binding agreement to sell its 76% stake in Lafarge Zimbabwe to Fossil Mines for an undisclosed amount. Five bidders were competing for the cement company, according to the Business Times newspaper. These companies included three China-based companies as well as local ones. China-based Huaxin Cement was reportedly one of the Chinese bidders.

Holcim agreed to sell its Indian assets to Adani Group this week for US$6.37bn. These include Holcim’s stakes in its local subsidiaries Ambuja Cement and ACC. The deal, if approved by the local competition body, should complete in the second half of 2022. This is one of the larger sales of cement company assets over the last decade. Adani Group, an Indian-based conglomerate with businesses across energy, transport and more, is now poised to become the second largest cement producer in India.

Global Cement Weekly previously covered a potential sale of Ambuja Cement and ACC in April 2022 when the story that Holcim was looking for a buyer first emerged in the Indian press. At the time local press speculated that the sale could generate as much as US$15bn for Holcim. So it is interesting to see that a figure of US$6.37bn has been agreed upon instead, less than half of the speculative figure. Roughly, as ever, this places a value of a little below US$100/t of cement production capacity. This seems like a relatively low pricing for these plants by international standards over the last decade. However, this doesn’t take into account many factors such as, for example, the condition of the plants, Holcim’s desire to change its business, the ease of selling up in India all in one go, other non-cement assets and so on. For Adani Group though, buying into heavy building materials production in a large market like India clearly seemed attractive. It is also worth noting that, similar to other cement sector acquisitions recently, here again is a buyer with a background in another carbon-heavy industry buying into another heavy emitter.

Table 1: Selected large scale acquisitions of controlling shares in non-Chinese cement production assets since 2012. Source: Global Cement news and company releases. Italcementi acquisition value reported by Reuters.

Table 1 above provides some historical context to Adani Group’s agreed acquisition by comparing it to other large completed deals in the cement sector over the last decade. Don’t forget that it is only looking at this from the cement sector. This list excludes changes in ownership in the Chinese cement companies in this period because, generally, there has been a government-driven consolidation in the industry through mergers rather than large-scale acquisitions. So, for example, the world’s current biggest cement producer CNBM had a reported production capacity of 350Mt/yr in 2012 and this rose to 514Mt/yr in 2020 as it absorbed other state-owned companies. The big merger it underwent during this time was with China National Materials (Sinoma) in 2018, primarily an engineering company that also produced cement.

The most obvious trend in Table 1 is the journey of Lafarge and Holcim from their merger in 2015 and the gradual realignment of the business subsequently. During this time the company has sold up in large markets outside of its core regions in Europe and North America. Latterly, it has also started to diversify away from heavy into lightweight building materials. One notable ‘nearly happened’ was LafargeHolcim’s attempt to sell its business in the Philippines to San Miguel Corporation for US$2.15bn in 2019. That deal collapsed when the Philippines Competition Authority failed to approve it within a year of its proposal. CRH enlarged itself from assets sold during the creation of LafargeHolcim and then picked up Ash Grove in the US in 2018. CRH’s head Albert Manifold memorably said in 2018 that his company was focusing on markets in developed countries and CRH’s large-scale acquisitions have largely followed this.

As for the others, HeidelbergCement’s purchase of Italcementi in 2016 almost appeared as a riposte to the formation of LafargeHolcim, albeit on a slightly smaller scale. It confirmed HeidelbergCement’s place as the world’s second largest non-Chinese cement producer. It is also one of the minority of truly multinational acquisitions on this list. Unlike LafargeHolcim and now Holcim though, HeidelbergCement hasn’t exhibited a desire to downsize or diversify at quite the same speed. UltraTech Cement’s acquisition of Jaiprakash Associates in 2017 confirmed its place as the largest Indian producer. That deal was publicly one of the longer lasting one as it originally started out in at least 2014 on a smaller scale and was later slowed down by the Mines and Minerals (Development and Regulation) (MMDR) Amendment Act. Smikon’s purchase of Eurocement in 2021 almost looks like part of the isolation of the Russian economy, especially with the benefit of hindsight given by the invasion of the Ukraine in early 2022.

Mega-deals have lots of moving parts but two of the most tangible to broader audiences are the price and the timing. Cemex infamously got both of these wrong with its acquisition of Rinker in 2007 as it paid high just as the US subprime mortgage crisis started a wider global financial one. This was despite Cemex’s emergence over the previous 15 years as a multinational force to be reckoned with due in part to the so-called ‘Cemex Way’ approach to management, acquisitions and integration. Clear winners from the big acquisitions over the last decade are harder to spot but CRH and UltraTech Cement look strong so far. Adani Group has certainly picked a lively time to make a purchase on this scale following a global pandemic with ongoing global supply chain issues and disruptions to energy and food markets.

Russia: Holcim said that it has received interest from over 30 possible buyers for its Russian business. The group announced that it would sell the assets, including three cement plants, in March 2022, after the Russian invasion of Ukraine on 24 February 2022.

Chief executive officer (CEO) Jan Jenisch said that the sale would need to be handled ‘with very great diligence.’ He continued "We don't expect to write it off completely. I would hope this business has a value." Jenisch asked investors and commentators to ‘give us a couple of months’ to ‘get more clarity.’

India: UltraTech Cement has taken legal advice for its planned bid for Holcim's Indian business and says that it will volunteer to divest 15Mt/yr-worth of cement assets in order to accelerate the Competition Commission of India (CCI) approval process which would follow on from the acceptance of any offer. The Economic Times newspaper has reported that UltraTech Cement has filed five long form merger notifications for acquisitions of this type since 2013. These included its purchases of Binani Cement and Century Cement, and of Jaypee Group's Gujarati cement assets.

The Financial Express newspaper has reported that fellow contender Adani Group has offered 'more than' US$10bn for the assets, while JSW Group plans to offer US$7bn. BusinessLine Online News has reported that a fourth company, steel producer ArcelorMittal, has also held initial talks with Holcim over the assets.

In considering possible competition issues arising under any future deal, the CCI will factor in planned and upcoming cement capacity. In Gujarat, where Holcim India subsidiaries ACC and Ambuja Cements operate 6.8Mt/yr-worth of capacity, Adani Group plans to build a new 10Mt/yr cement plant at Lakhpat.

Ireland: CRH has completed its divestment of its building envelope business. The group has reported the value of the deal as US$3.8bn.

In February 2022, CRH said that it had entered into a binding agreement to divest the building envelope business to US-based private equity firm KPS Capital Partners. It added that the decision to divest at an ‘attractive valuation’ followed a comprehensive review, demonstrating its active approach to portfolio management, the efficient allocation of capital and the creation of a simpler and more focused group.

This week’s big story has been that Holcim may be considering selling its business in India. Both the Economic Times newspaper and Bloomberg separately reported that the owner of Ambuja Cement and ACC has been holding early talks with local producers. The discussions have been described as exploratory and an eventual divestment is far from certain. The combined market value of both companies was placed at US$15bn, at the time that the story broke, making it one of the largest potential acquisitions in India. Holcim has refused to comment on the matter.

If it actually happened then the scale of this potential sale would be breathtaking. Holcim has been gradually slimming down since the merger between Lafarge and Holcim in 2015. The big divestments mostly came after the appointment of former Sika boss Jan Jenisch in 2017. Four integrated plants and other assets were sold in Indonesia for US$1.75bn in 2019, a 51% stake in three integrated plants and two grinding plants were sold in Malaysia for US$396m (also in 2019) and five integrated plants were approved for sale in Brazil for US$1.03bn in April 2022.

A complete divestment of Ambuja Cement and ACC in India would see 17 integrated plants and 14 grinding plants being sold with a production capacity of around 66Mt/yr. If any company did buy the lot in one go, at a stroke it would become the second-largest cement producer in the world’s second-largest second market. The nearest acquisition in the last decade that comes close to this was when CRH purchased 24 cement plants with a production capacity of 36Mt/yr from Lafarge and Holcim in 2015 for US$6.5bn.

2022 would certainly be a good time to sell up with both Ambuja Cement and ACC having reported strong sales and earnings figures in 2021 following the coronavirus-related lockdowns in 2020. Performance is even better compared to 2019. Ambuja Cement’s net sales and earnings before taxation, interest, depreciation and amortisation (EBTIDA) grew by 23% year-on-year to US$1.81bn and by 21% to US$420m respectively in 2021. ACC’s sales and operating EBITDA grew by 17% to US$2.07bn and 28% to US$393m respectively in 2021. However, ACC’s net sales growth was much lower compared to that in 2019. Ambuja Cement produced 25.9Mt of cement in 2021 with a production capacity of 31.5Mt giving it a utilisation rate of 82%. ACC produced 26.9Mt of cement in 2021 with a production of 34.5Mt/yr giving it a utilisation rate of 78%. Both of these rates are higher than the national cement sector rates forecast by analysts of up to 64% in the 2022 financial year. The corporate specifics of any sale are that Holcim owns a majority stake in Ambuja Cement, which in turn owns a majority stake in ACC. In other words: buy one, get the other.

One wider question here is whether there are still any companies and investors out there prepared to put money on this scale into a carbon-intensive industry with net-zero deadlines on the way. Ahead of the 2021 United Nations Climate Change Conference (COP26) in November 2021, India’s prime minister Narendra Modi pledged that his country would cut its emissions to net-zero by 2070. There’s plenty of time left to turn a profit, as cement kilns last about 50 years, but the risk of investing in a stranded asset is growing if the targets are honoured or even brought forward. As a recent Intergovernmental Panel on Climate Change (IPCC) report put it, “Cement and concrete are currently overused because they are inexpensive, durable, and ubiquitous, and consumption decisions typically do not give weight to their production emissions.” All of this suggests that buyers might well be more interested in purchasing parts of Holcim’s Indian operations rather than the whole bundle or breaking operations up further down the line. And that’s even before any competition concerns related to any local buyers are considered. Holcim, for its part, has shown with recent divestments, such as its business in Northern Ireland, that it isn’t necessarily against smaller piecemeal divestments. Negotiations, if they are indeed happening, will be closely guarded.

India: Switzerland-based Holcim is reportedly in the early stages of selling its subsidiaries Ambuja Cement and ACC. The company has held discussions with JSW, Adani Group and others, according to sources who have spoken to the Economic Times newspaper. Multinational building material producers have also been approached. Holcim has not commented on what it described as ‘rumours.’ Ambuja Cement and ACC have a combined cement production capacity of 66Mt/yr

Australia: BGC has started a second attempt to sell the company and has appointed Macquarie Capital to run the process. An indicative bidding round is planned for June 2022, according to the Australian Financial Review newspaper. The process is expected to take up to one year. BGC previously tried to find a buyer in 2018 but legal issues following the death of the company founder Len Buckeridge and a slowdown in the construction market in Western Australia made this difficult.

The company is presenting itself as a major presence in the West Australia cement market, with a 47% share, and the only organisation with a vertically integrated quarry, cement and concrete business. Macquarie Capital says that the company has an annual revenue of around US$740m and earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$74m. Group earnings are reportedly mostly generated by heavy building materials, brick and masonry divisions. BGC assets include a cement grinding plant, concrete plants and a gypsum wallboard plant in Perth.

The economic fallout from the war in Ukraine continued this week with the news that Holcim plans to leave the Russian market. It said that it took the decision based on its “values to operate in the most responsible manner.” The company’s Russian subsidiary added that all of its plants would continue to operate as normal while it considered its divestment options.

Holcim’s road to withdrawal has been staggered. In February 2022 at the start of the war it pronounced its sympathy for any affected colleagues and their families and made a Euro1m donation to the Red Cross. Later it said that it would continue operating its business in Russia by following all regulations and supplying the local market. However, at this time it said it would suspend further capital investments in Russia and that it would “not benefit from our presence in this market.”

It’s unknown what prompted Holcim to take the plunge with Russia one month after the war started. At the very least, making decisions over assets valued this highly takes time. CM Pro has reported that the Russian government has considered introducing reference prices for building materials for infrastructure projects and that the Federal Antimonopoly Service (FAS) has been monitoring prices for ‘unreasonable’ growth over the last month. This follows grumbling by the Ministry of Industry and Trade in late 2021 about an apparent low capacity utilisation rate in the country despite shortages in the Central Federal District.

CRH said that it was leaving its Russian concrete business in early March 2022. Yet the decision by Holcim makes it the first of the three western multinational cement producers with large-scale operations in Russia to publicly say it’s pulling out. Holcim, HeidelbergCement and Buzzi Unicem each operate at least two integrated cement plants in the region.

Lafarge entered the Russian market in 1996. Its successor Holcim runs plants at Voskresensk and Kolomna in the Moscow region, at Ferzikovo in the Kaluga region and Volsk in the Saratov region. Together the plants have a production capacity of around 9Mt/yr. Over the last decade Holcim and its predecessor has invested at least a reported Euro1.3bn in three of the plants. The dry-production line Ferzikovo plant was built in 2015. The Shchurovsky plant in Kolomna was originally founded in 1870 and claims to be the oldest in the country. In 2011 it started commissioned a new dry production line. The Volsk plant started a modernisation project in 2017. The fourth, the Voskresensk plant, was mothballed in 2016. However, in early February 2022 LafargeHolcim Russia said it was aiming to spend Euro23m towards restarting production at the site. This was likely due to a boom in construction in 2021. The subsidiary also owns three aggregate quarries in the Republic of Karelia region of the country, near the border with Finland.

Selling up in Russia looks set to be difficult for Holcim. This is principally due to the European and American economic sanctions and the Russian government’s stated intention to nationalise the assets of any company trying to leave. This is clearly why Holcim has worded its plans so vaguely. If or when a peace deal is reached between Russia and Ukraine, the business environment could change significantly, depending on the terms, complicating any existing sale process. Determining how much Holcim might want to get from such a sale in these conditions is complex. Smikom bought Eurocement from Sberbank for Euro2.1bn in 2021 giving it 10 plants. Could Holcim realistically expect to sell its plants for around Euro200m each in the current environment? As for the hit Holcim might take, in its annual report for 2021 it said that the group’s Russian operations represented around 1% of the 2021 consolidated net sales. This would have been around Euro260m. Its Russian cement production capacity was reported as being 9Mt/yr in 2021 or 3% of the group’s global figure of 293Mt/yr.

Finally, it is worth noting though that Lafarge’s charges of ‘complicity in crimes against humanity’ also continued to be tested in the French courts this week. The legal case relates to the conduct of Lafarge in Syria between 2011 and 2014. This is totally separate from the situation in Russia but it does highlight the issue of corporate ethics for the group once again. Following proceedings in December 2021, Beat Hess, chair of the board of Holcim said, “The described events concerning Lafarge SA were concealed from the Holcim board at the time of the merger in 2015 and go completely against the values of our company.” Consider that use of ‘values’ again. Holcim may be about to find out how much it is prepared to pay for its values as it departs Russia.