Displaying items by tag: Legal

Kenya: The High Court has opposed the appointment of Bruno Oguda Obodha as the managing director of East African Portland Cement (EAPCC). The court took action following a petition in late December 2024 that argued that the selection process was opaque and not accountable to the public, according to the Nation newspaper. Oguda was chosen for the role by the country’s president William Ruto. However the role of the Public Service Commission in the appointment process has been questioned by the court. The vacancy for managing director post at EAPCC was announced in October 2024.

Typical! We published a cement sector news review for 2024 in the December 2024 issue of Global Cement Magazine and a load of big important events happened afterwards. So, here is a roundup of some of the major stories that have taken place in the last two months of the year.

The TL:DR (too long; didn't read) version of ‘Global Cement News in 2024’ was: focus on the US market by the multinationals; cement joining the emissions trading scheme in China as the world’s largest market stagnates; continued rivalry between UltraTech Cement and Adani Group in India as that sector grows; markets in the Middle East and North Africa adjusting to higher exports; the drawn out divestment of InterCement in Brazil; lots of new plants in Sub-Saharan Africa reflecting demographic trends; and an emphasis on construction and demolition materials in Europe but one on aggregates in North America.

However, from November 2024 onwards… Donald Trump was re-elected as President in the US, Quikrete put in an US$11.5bn deal to buy Summit Materials, the United Nations Climate Change Conference (COP29) in Azerbaijan ended in acrimony, Gautam Adani was accused of fraud by a US court and Huaxin Cement said it was buying Holcim’s majority stake in Lafarge Africa for US$1bn. These have all been covered in previous editions of Global Cement Weekly. Check them out for more information. One can tell it’s been a busy tail-end to the year though when a US$600m agreement by Heidelberg Materials North America to buy Giant Cement Holding did not make the top five, admittedly selective, noteworthy news stories of the last two months of 2024. These stories also, roughly, followed the trends highlighted in the ‘Global Cement News in 2024’ article.

To reflect on the Adani story a few weeks later, nothing much seems to have occurred. Yet. The share price of various Adani Group companies fell when the US authorities made the announcement in late November 2024 but they have mostly regained much of their value since then. The consensus by Reuters, this week, was that the US prosecutors have a strong case backed up by documentation but extradition seems unlikely. Adani himself has made public appearances in India since the allegations surfaced. One minor consequence has been that Gautam Adani exited the US$100bn Bloomberg Billionaires Index in 2024. This is likely to have been caused, in part at least, by the allegations from Hindenburg Research in 2023 and the current legal problems from the US bringing down share prices. On the cement side of Adani Group it appears to have been business as usual so far. A large-scale investment in Rajasthan was announced in December 2024 and, this week, plans to merge subsidiaries Sanghi Industries and Penna Cement with Ambuja Cements were disclosed.

Another general trend that we haven’t covered much online have been changes in the Australian market. Last week, Cement Australia, a joint venture between Heidelberg Materials Australia and Holcim Australia, said it was acquiring the cementitious division of the Buckeridge Group of Companies (BGC) for US$800m. This follows CRH’s purchase of a majority stake in AdBri that was approved by the latter’s shareholders over the summer. Around the same time, Seven Group Holdings completed its acquisition of the remaining 28% stake in Boral that it did not already own. For more on the situation in Australia and New Zealand read the article in the January 2025 issue of Global Cement Magazine.

That’s it for 2024. Unless another massive news story in the cement sector gets announced in the next week-and-a-half.

Global Cement Weekly will return on Wednesday 8 January 2025

Many readers will be aware that Gautam Adani was accused of fraud by a US court this week. In a brief statement, Adani Group said that the allegations were “baseless and denied.” The indictment relates to a solar power project, but what does this mean for Adani Group’s cement businesses?

The charges by the US Department of Justice allege, following an investigation, that Gautam Adani, Sagar Adani and Vneet Jaain, executives of India-based renewable-energy company Indian Energy Company, committed “...securities and wire fraud and substantive securities fraud for their roles in a multi-billion-dollar scheme to obtain funds from US investors and global financial institutions on the basis of false and misleading statements.” A number of other individuals have also been accused, along with the two Adanis and Jaain, of participating in a US$250m bribery scheme to Indian government officials connected to a large-scale solar energy project. The indictment related to the period 2020 - 2024 and further alleges on several occasions that “Gautam Adani personally met with an Indian government official to advance the bribery scheme.” The Securities and Exchange Commission (SEC) has also started a connected civil case.

The problem here is that the indictment has rocked the value of Adani Group’s subsidiaries and reduced the credit ratings of some of them. This in turn will make it harder for these companies to raise money in the future for expansion. Various reports in the media said that the group’s companies had lost something in the region of US$30bn as stock prices fell by around 20%. They have since rallied somewhat. And lest we forget, Adani Group has some serious expansion plans. In the cement sector, it is targeting a production capacity of 140Mt/ yr by 2028. Recent transactions include Ambuja Cement’s purchase of Penna Cement for US$1.25bn in August 2024 and a planned acquisition announced in October 2024 of a 47% stake in Orient Cement for US$451m. The group was also linked in the local media to a bid to buy Heidelberg Materials’ India-based business in October 2024.

All of this comes with a price. International credit ratings agency S&P put Adani Ports, Adani Green Energy and Adani Electricity on a downgrade warning. Then, Fitch Ratings and Moody’s followed. Moody’s, for example, downgraded its outlook for seven Adani Group companies to ‘negative’ from ‘stable’ but it affirmed ratings on them. It commented that the allegations “could have a broader credit impact on all rated Adani group issuers” and that they would “likely weaken the Adani group’s access to funding and increase its capital costs.” It added that its actions recognised “...the possibility of broader weaknesses in the governance structure across the rated Adani group entities as well as potential operational disruptions, including on their capital-spending plans, while legal proceedings are going.” The decision by the ratings agencies does not appear to have directly affected Adani Group’s cement companies, Ambuja Cements or ACC, so far. The group may get lucky here given that these companies focus on the domestic market. Thus their credit ratings may remain more buoyant, regardless of what happens next.

As with a number of other global issues at the moment, the outcome of the recent US presidential election may also play into this case. Attorney Ravi Batra told the Press Trust of India that the incoming Trump administration might view the Adani charges as so-called ‘lawfare.’ This is where legal processes are used to target a nation’s economic or other opponents. In addition the current chair of the SEC, Gary Gensler, announced his intention to step down from the role in January 2025. It seems unlikely that the Trump administration might intervene in a legal case involving a foreign company accused defrauding US citizens but the possibility of realpolitik playing a role shouldn’t be totally discounted.

This is the second major international scandal overhanging Adani Group since the disclosures by Hindenburg Research back in early 2023. Those allegations were relatively easy to shrug off given that its accuser was an investment research firm with a reputation for using its findings for short selling shares. Hindenburg Research was not a neutral bystander. This time round, the US judicial system has become involved and the consequences are bigger both reputationally and from any potential legal outcome. In the short term, the credit implications for Adani Group as a whole are becoming apparent. Various companies and countries have stalled or cancelled planned investments. However, the cement business is smaller than the group’s power and transport concerns. It also operates domestically. We’ll have to wait and see what the wider implications for Adani Group are. The first thing to watch for the cement business will be any effect on its expansion plans.

Starlinger revealed this week that it had taken on copycats in China and won. The packaging machine manufacturer said that it had sued a number of China-based machine manufacturers and their customers, packaging producers, based on infringement of several of its patents. An out-of-court settlement was eventually reached with the case going before both a civil court and a Chinese court specialised in intellectual property. Naturally, Austria-based Starlinger did not say what the settlement involved other than stating that the proceedings had been “...settled with strict obligations for the machine manufacturers.”

It’s unclear how directly the case affected the cement sector. Starlinger did say that the case involved a replica of a proprietary sack conversion line for producing woven plastic sacks. Packaging producers, often in Asia, use Starlinger’s conversion lines to manufacture proprietary block bottom valve sacks made of polypropylene tape fabric for the cement and construction industries, although they are also used for other dry bulk goods such as rice, flour or chemical granulates.

Starlinger’s reasons for going public are interesting given that most companies steer well clear of discussing legal matters openly. In the accompanying press statement Harald Neumüller, the chief strategy officer of Starlinger, used the disclosure to promote his products by saying “Only the best are copied, as the saying goes.” He then went on to underline the company’s strengths in research and development. Yet he also admitted that this was “...little consolation if it has economic consequences for innovative machine manufacturers like us.”

Firstly it should be noted that battles over patents and ideas happen everywhere from time to time. Discussing international copyright theft has become politicised because it plays into the geopolitical rivalry between the US, Europe and China. One US-government commissioned estimate in 2017 reckoned that the US economy was losing US$225 - 600bn/yr due to counterfeit goods, pirated software and theft of trade secrets. This report has been criticised but it gives one an idea of the scale of the concern. However, there are also plenty of prognosticators in the western media who have spent the last two decades warning of a hard landing in the Chinese economy that hasn’t happened.

Bringing this discussion back to cement, following the collapse of the real estate market since 2021, cement output has fallen. Data from the National Bureau of Statistics of China shows that output decreased by 11% year-on-year to 1.33Bnt in the nine months from January to September 2024. This appears to be following a similar decline in local real estate investment. The market is still correcting itself and the government is making gradual changes but there has been no apparent cataclysm so far. China-based equipment suppliers don’t appear to have suffered to the same degree due to their foreign orders.

The standard western narrative is that when European or American companies sold their equipment in China from the 1990s onwards they contended with a rocketing economy and lax intellectual property (IP) enforcement. Such an environment reputedly made it easy for some local companies to copy machinery and sell it more cheaply. At the same time China’s industries legitimately surpassed their competitors leading to criticism about how they did it. Publicly available evidence of this behaviour in the cement sector is limited. One of the few includes action by Haver & Boecker, another packaging machine manufacturer, in the late 2010s. However, anecdotally, the view that IP was stolen in China is prevalent in the west whether it is true or false. No doubt readers will have their own experiences and opinions. None of which would be publishable. The issue has been superseded though as China’s cement sector has become the largest in the world by a considerable margin. The biggest manufacturers of cement plants in the world are now Chinese companies too. They either use their own equipment or buy in western kit depending on what the customer wants. They also own a number of their overseas competitors and more potential acquisitions look likely.

All of this is what makes Starlinger’s admission unusual. It has taken a stand and it may have paid off. At the very least the equipment supplier is wringing publicity out of the affair regardless of how big - or small - the settlement may have been. Others may follow.

Bolivia: The Permanent Court of Arbitration has found itself ‘without jurisdiction’ to resolve a claim by Consorcio Cementero del Sur, Grupo de Inversiones Gloria Bolivia, SOBOCE and Yura Inversiones Bolivia against the Bolivian government over the nationalisation of a stake in FANCESA. Local press has reported that Bolivian Attorney General’s Office welcomed the finding as a ‘resolution of the case in favour of the Bolivian state.’

France/Syria: The French Court of Cassation will deliver its decision on the appeal filed in May 2022 by Lafarge, now part of Holcim, in the case relating to its activities in Syria in the 2010s, on 16 January 2024.

The body will rule on the indictments of Lafarge for complicity in crimes against humanity and endangering the lives of its employees in Syria, which were confirmed by the Paris Court of Appeal in 2022, and which the company is still contesting. The group is suspected of having paid in 2013 and 2014, via its Syria-based subsidiary Lafarge Cement Syria several million euros to jihadist groups, including the Islamic State (IS) organisation, and to intermediaries, to maintain the activity of a cement factory in Jalabiya, even as the country plunged into war.

Spain: The Supreme Court of Spain ruled in favour of tax authorities in their pursuit of Cemex España for its accounting of reported losses in the 2006 – 2009 financial years on 21 November 2023. The authorities imposed a Euro456m fine on the company following an audit in July 2011.

Mexico-based Cemex said that is has ‘sources of liquidity’ available to pay the fine, which it now anticipates that it will do before the end of June 2024.

Cemex ‘categorically’ disagrees with the imposition of the penalty. The group maintains that the losses Cemex España declared were not used and since 2012 have not been accounted for in its financial statements.

Kenya: Peter Kahi of PKF Consulting has been appointed as the administrator of Savannah Cement. This follows the resignation of Harveen Gadhoke, according to the Business Daily newspaper. Gadhoke was appointed as the administrator of the company in November 2022 when Absa and KCB attempted to put it into administration due to combined debts of US$66m. Savannah Cement fought back legally against the attempt to manage it externally but a court rejected this in July 2023.

Bangladesh/India: The completion of an upgrade project to Chhatak Cement’s plant has been thrown into doubt due to uncertainty about securing limestone from India. The plant still needs to build a new 17km ropeway conveyor and this has been delayed due to failure to obtain permission on the Indian side of the border, according to the Daily Star newspaper. It is also facing problems procuring limestone in India due to on-going legal proceedings on environmental grounds between exporters in Meghalaya and the government. The Supreme Court of India granted permission for exports in 2022 but the case is still pending. In addition, plans to install a gas line from Sylhet to the plant has not started yet either.

The state-owned cement producer is run by the Bangladesh Chemical Industries Corporation (BCIC). It originally announced in 2016 that it was spending over US$100m to build a new 1500t/day dry production line at the plant to replace an old wet production line. Although the old line originally had a production capacity of 233,000t/yr, it had fallen to around half of this. However, despite the construction of new silos and other equipment at the site, the unit has not been operational since early 2020. The new line was originally planned to start operation in 2020 but this was delayed until 2023. The BCIC has now proposed that completion of the project be extended to mid-2025.

National Cement is preparing to open its new integrated West Pokot plant in September 2023. Readers may recall that the long-running project was taken over by Devki Group from Cemtech and Sanghi Industries after the Competition Authority of Kenya (CAK) gave it permission to do so in 2019. The original feasibility report by the Kerio Valley Development Authority dates back to 2010. The new plant will have a production capacity of 2.5Mt/yr.

However, this isn’t the only new clinker production capacity that Devki Group, which sells cement under the Simba Cement brand, is preparing to commission. Local media also reports that the company is also preparing to restart the former Athi River Mining Cement integrated plant at Bondora in Kaloleni, Kilifi County. After five months of trial runs the unit should be ready for full operation from April 2023. Devki Group also picked up this plant in 2019 following the long breakup of ARM Cement, after the latter producer entered financial administration back in mid-2018.

Devki Group started out in the steel sector but it has been steadily carving out a presence in the cement industry. The group opened its first cement grinding plant in 2013 and then built a 1.95Mt/yr integrated plant in Kajiado County, south of Nairobi, in 2018. Once the West Pokot plant is commissioned, the company will reportedly have a clinker production capacity of 7.5Mt/yr from three plants.

This kind of growth is making waves in the local cement sector. Since Global Cement Weekly covered the situation in September 2022 (GCW576), an argument has been brewing in Kenya over whether the country should import clinker or manufacture more of its own. This has moved to lobbying the government on whether the duty on imports of clinker should rise from 10% to 25%. Unsurprisingly, the country’s largest clinker producer, National Cement, even before the new plants are operational, has been a major advocate for putting up the import tariff. This carried over into 2023, when local press revealed the minutes of a meeting between the State Department of Industry and the Kenya Association of Manufacturers (KAM), with input from the cement producers. Rai Cement, Bamburi Cement, Savannah Cement, Ndovu Cement and Riftcot were all against raising the tariff, saying that it would enable the largest clinker producers, National Cement and Mombasa Cement, to dominate the market. However, unlike the last such meeting, Mombasa Cement was said to be non-committal on the proposal to increase the duty. Despite the disagreement over the tariff, all of the cement companies imported clinker in 2021.

Graph 1: Rolling annual cement production in Kenya, 2019 - October 2022. Source: Kenya National Bureau of Statistics (KNBS).

Rolling annual cement production in Kenya peaked at just over 10Mt in May and June 2022. Data from the Kenya National Bureau of Statistics (KNBS) shows that monthly production started to fall on a year-on-year basis from July 2022. This is likely to be connected to the elections that took place in August 2022, although wider economic trends such as inflation and high input material prices may not have helped either. Despite this, cement production rose by 5% year-on-year to 8.02Mt in the first 10 months of 2022 from 7.65Mt in the same period in 2021.

Other recent news of note in Kenya includes the restart of clinker production at East African Portland Cement’s (EAPC) Athi River Plant in mid-2022. The upgrade was conducted as part of a general five-year upgrade and expansion campaign by the company. The next steps were announced in January 2023 with a stated intention to consider entering markets in the Democratic Republic of Congo and Rwanda. The other story of note was in December 2022, when China-based Sinoma International Engineering announced that it had signed a deal with Savannah Cement to build a new 8000t/day clinker production line with a 2400t/day cement grinding unit, a 35MW captive power unit and a 13MW waste heat recovery unit. As is standard for Sinoma’s new contract releases, it said that the contract would become active once an “advance payment guarantee” had been received. Later in December 2022 the Kenya High Court intervened to stop two creditors from seizing assets from Savannah Cement and putting it into administration, although the court did acknowledge the company’s debts and a loan repayment default. In January 2023 Mauritius-based Barak Asset Recovery, another related creditor, was approved by the competition regulator to buy a majority stake in Savannah Cement. The current state of that new production line is unknown.

As the two stories above show, it is not just National Cement that is trying to move towards increased clinker production in Kenya. The whole situation is reminiscent of the time before Nigeria declared itself self-sufficient in cement in the early 2010s. Local producers became prominent and the market battle between producers and importers became public. Kenya’s range of different cement companies seem to be more diverse than Nigeria’s were, but a similar type of national interest argument may be rolled out by one side. The other parallel to note with Nigeria is that Dangote Cement is said to have attempted to buy National Cement previously and has also been trying to build its own plant in the country since the mid-2010s. Kenya’s demographics and location make it a prime place for this kind of producer-importer tussle. Let’s wait and see how much the situation has changed when the new plants open over the next six months.