Displaying items by tag: Huaxin Cement

InterCement confirmed this week that it is accepting bids for its sale. The local financial press had been covering InterCement’s progress towards this since the autumn when it was reported that it appointed BTG Pactual to manage the sale.

The Valor Econômico newspaper then revealed this week that Companhia Siderúrgica Nacional (CSN), Votorantim and China-based Huaxin Cement had all submitted bids. InterCement admitted that it had received offers but didn’t say from who, and pointed out that no deal had been signed yet. Valor said that Votorantim was part of a consortium including Polimix (parent company of Mizu Cimentos) and Buzzi. However, Votorantim issued a statement affirming its involvement but pointing out that it was acting alone and not part of a consortium. Finally, Valor reported that InterCement is looking to raise at least US$1.2bn from the sale of its business in Brazil. In Argentina, Loma Negra confirmed what its parent company, InterCement, was doing. La Nación newspaper also reckoned that the parent company might be looking for over US$700m for the subsidiary.

Rumours that InterCement was looking to sell assets have swirled around since the early 2010s when InterCement picked up the Brazil-based assets of Cimpor and Votorantim bought the international ones. The local market then collapsed giving InterCement a hard time, although when it started to rally in the late 2010s the talk turned to a potential initial public offering. More recently the focus has been on InterCement’s high level of debt and pending maturation dates. It publicly said it was working towards a new capital structure in May 2023 and various debt negotiations followed. By the end of the third quarter of 2023 it reported debts in debentures and senior notes of just under US$1.6bn. It signed a deal to sell its subsidiary in Egypt in January 2023 to an unspecified buyer and then divested its operations in Mozambique and South Africa to Huaxin Cement for just over US$230m in December 2023.

It is noteworthy that InterCement has gone public about its divestment intentions now, given previous coverage in the local press and the poor state of its finances in 2023. In November 2023, for example, Valor reported that CSN had hired Morgan Stanley to represent it in a dispute over the sale. At this time Huaxin Cement plus Titan, Buzzi, Polimix and Vicat were all said to be interested. CSN was also said to be waiting until the results of the presidential election in Argentina first before committing to any deal. Yet InterCement said nothing about what was going on at this time.

The other issue is whether InterCement wants to sell its assets in one big piece or in sections. This would be of particular interest to Votorantim, and CSN to a lesser extent, since they control 30% and 20% of the cement market respectively, according to Valor. Data based on cement production capacity data from the Global Cement Directory makes the gap between the two companies wider since Votorantim holds 46% compared to CSN’s 9%. The point here is that the local competition regulator, the Administrative Court of the Brazilian Administrative Council of Economic Defence (CADE), would be more likely to intervene if it determined that one company might be about to distort the market. Clearly this could happen if Votorantim struck a deal to buy InterCement but there might also be issues regionally with CSN or indeed some of the other local cement producers. Alternatively, Votorantim might be interested in buying Loma Negra instead. All InterCement has said on the matter is that it is “evaluating strategic alternatives, such as private placement, merger, or partnership with a strategic player, or even a potential divestment.”

Any potential sales of InterCement would be the biggest adjustment to the Brazilian cement sector since CSN bought Holcim Brazil for just over US$1bn in mid-2022. There appear to be plenty of potential vendors for both the businesses in Brazil and Argentina but whether InterCement sells its assets in one big lump or in separate pieces may be an issue almost as important as the price, given the competition concerns. Finally, could this be the first major China-based acquisition in the cement sector in South America? Huaxin Cement demonstrated willingness to buy plants from InterCement in Africa in 2023 and it has been linked in the current auction. Unlike previous talk of InterCement selling up, this time it seems serious given the divestments in Africa and the scale of the debt. An outcome seems likely in the coming months.

Brazil: Companhia Siderúrgica Nacional (CSN), Huaxin Cement and Votorantim Cimentos have all bid for InterCement’s Brazilian business, Valor Online News has reported. The source stated that Votorantim Cimentos is leading a consortium alongside Italy-based Buzzi and concrete producer Polimix Concreto, however the Brazilian cement market leader denied this, stating that its offer is ‘individual and independent.’ Both Votorantim Cimentos and CSN Cimentos are reportedly considering making initial public offerings (IPOs).

Votorantim Cimentos said “The company clarifies that it is not part of nor leads any consortium within the auction process. To date, its offer remains under evaluation by the respective seller and, therefore, no documents have been signed with any counterparty that generate an obligation or firm commitment for the acquisition of the assets that were the subject of the offer.”

Tanzania: Huaxin Cement Tanzania Maweni Company has commissioned a new 4000t/day clinker line at its Mavini cement plant, after completing the Phase 2 of the plant’s construction. China Industrial and Economic Information Database has reported that this phase of construction commenced in August 2022. The new line is equipped with a 15MW biomass-fired power plant.

During the 14th Five-Year Plan (2021 – 2025), Huaxin Cement aims to quadruple its production capacity outside of China to 16.5Mt/yr. 6.07Mt/yr-worth of this will come online in 2024 and 2025. The company says that its strategy partly reflects the slowing of its domestic market since 2022.

Brazil: Investment banking and management company BTG Pactual will start receiving ‘binding proposals’ for prospective buyers of assets belonging to InterCement before the end of February 2024, Valor Online News has reported. These will reportedly include InterCement's stake in Argentina-based Loma Negra, as well as its Brazilian business. The latter may involve an outright divestment or the enlistment of a new significant partner. Companhia Siderúrgica Nacional (CSN) previously hired Morgan Stanley for negotiations with InterCement, and China-based Huaxin Cement has reportedly showed interest in its assets. While an outright acquisition might face challenges on grounds of competition, Brazilian market leader Votorantim Cimentos is nonetheless also ‘interested’ in a partial takeover. Continuing plant closures and debt-related asset disposals also potentially further complicate any deal. On the basis of CSN’s previous US$1bn acquisition of (10.3Mt/yr-capacity) LafargeHolcim Brazil, Valor Online News has estimated the sale price of InterCement’s Brazil business as US$1.6bn.

South Africa: China-based Huaxin Cement completed its acquisition of Brazil-based InterCement’s South African business on 27 December 2023. MarketScreener News has reported that financial services firm JPMorgan Chase acted as advisor to InterCement. The deal concludes the Brazilian company’s exit from Africa, after it sold its Egyptian and Mozambique businesses earlier in 2023.

The first half of 2023 has continued to be a tough period for the major China-based cement producers, with revenue and profits down for many. As CNBM put it, the sector is facing production overcapacity, weak demand, high inventory, low prices and declining profits. However, not every company has followed this trend, with a few such as Anhui Conch, Huaxin Cement and Tapai Group managing to hold operating income up and the latter somehow even managing to increase its net profit. The China Cement Association (CCA) in its financial coverage has memorably described these companies that have bucked the national picture as ‘dark horses.’

Graph 1: Sales revenue from selected Chinese cement producers. Source: Company financial reports. Note: For CNBM, cement revenue shown only.

Graph 1 above summarises the situation for a selected group of cement producers. Anhui Conch avoided the fate of CNBM by managing to grow its non-cement revenue, specifically from aggregates and concrete. Yet it too was unble to avoid its net profit falling by 32% year-on-year to US$928m in the first half of 2023 from US$1.37bn in the same period in 2022. Huaxin Cement pulled off the same trick by raising its concrete and aggregates revenue domestically and by growing its overseas revenue. As well as its subsidiaries in Africa, the company also added Oman Cement to its portfolio, completing the acquisition of a majority stake in April 2023. The CCA has a wider roundup of how well the local cement companies have done.

Graph 2: Cement output in China, 2019 to first half of 2023. Source: National Bureau of Statistics of China.

Data from the National Bureau of Statistics of China suggests that the cement sector is stagnating rather than actively declining. This is an improvement of sorts from the decline in the first half of 2022, at least. Cement output in the first half of 2023 rose ever so slightly to 980Mt from 979Mt in the same period in 2022. On a rolling annual basis cement output has been gently falling below 1% each month since November 2022, although it rose by nearly 1% in March 2023.

The underlying problem for the Chinese cement sector remains the local real estate market. Developer Country Garden has been the latest company to warn of potential losses – of up to US$7.6bn – in the first half of 2023. It is also currently attempting to ask for more time to repay a bond. This follows the financial problems that Evergrande has faced since 2021. Financial analysts have been monitoring the situation for several years and warning of what a larger collapse in the sector could mean for the wider economy, such as the implications for the banks that hold the debts of the developers. Commentary by Goldman Sachs in August 2023, for example, suggested that the real estate sector needs to manage its inventory on a large scale, with over US$2Tn in liquidations, in order to restructure debts in the property sector. It estimated that the whole situation could reduce the country’s entire gross domestic product (GDP) by 1.5% in 2023, although this would be the trough of the downturn in its view.

Cement producers in China continue to be held hostage by the conditions in the real estate market and the effect this has in turn on demand for building materials. Yet all is not lost, as the examples of the CCA’s ‘dark horses’ show, buoyed by business diversification, overseas expansion or even regional differences. How much longer the rest of the other cement companies can cope in this environment remains to be seen. A less regulated market would certainly expect to see mergers and acquisitions taking place as the financial pressure mounts. China, for now at least, remains steadfastly different. With luck the real estate market may reach its lowest point in 2023 and a recovery could follow.

China: Huaxin Cement has blamed a fall in its profits in the first half of 2023 on falling clinker prices and sales volumes in its home market. In a preliminary results announcement, it reported that its net profit dropped by 25% year-on-year to US$166m in the first half of 2023 from US$221m in the same period in 2022. Despite this, the group’s operating income rose by 10% to US$2.20bn from US$2.00bn. Its overall sales volumes of cement and clinker increased by 2% to just under 30Mt. However, domestic sales volumes decreased by 0.76%. It also reported that concrete sales volumes grew by 82% to 10.9Mm³.

Oman: Huaxin Cement informed the Muscat Stock Exchange of its intent to buy a further 5.1% stake in Oman Cement on 3 July 2023. Zawya News has reported that this would increase the China-based group's stake in Oman Cement to 64.7%. It acquired its existing 59.6% in the producer for US$193m earlier in 2023, but subsequently revised the price to US$200m.

Mozambique/South Africa: China-based Huaxin Cement has agreed to buy the Africa-based business of InterCement for US$265m. The deal includes the Brazil-based company’s assets in Mozambique and South Africa. It follows InterCement’s sale of its business in Egypt earlier in 2023 to an unnamed buyer. The company will use the latest proposed sale to reduce its debts. The transaction will be subject to approval from regulators in China, Mozambique and South Africa. InterCement appointed JP Morgan as its financial advisor to the sale of its operations in Egypt, Mozambique and South Africa.

InterCement operates two integrated cement plants and three grinding plants in Mozambique under its Cimentos de Moçambique subsidiary and one integrated plant and two grinding plants in South Africa under its Natal Portland Cement subsidiary. Huaxin Cement’s operations in Africa include subsidiaries in Malawi, Tanzania and Zambia.

Oman: Oman Cement has appointed Zhu Yaping as its chief executive officer. The appointment follows the retirement of Salim Abdullah Al Hajri in the post.

Zhu Yaping holds over 30 years of experience in the cement sector working for Huaxin Cement. His roles for the cement producer included that of plant manager in Hubei, maintenance manager in Wuhan and the company’s Head of Cement Industrial Performance. He holds a master’s degree in control theories and engineering from the Wuhan University of Technology and a bachelor’s degree in electrical engineering from the Nanjing University of Aeronautics and Astronautics.