INDIA: UltraTech’s $787m deal to buy Jaypee cement assets runs into regulatory hurdle

UltraTech Cement Ltd’s Rs.5,400 crore purchase of two cement assets from Jaiprakash Associates Ltd will not go through in a stand-alone deal.

Instead, the two assets in Madhya Pradesh with a combined capacity of producing about 5 million tonnes of the building material will be folded into a larger transaction under which Jaiprakash Associates is seeking to divest its entire cement capacity, said two people familiar with the development.

UltraTech, a part of the Aditya Birla Group, is one of the three potential bidders for the nearly 20 million tonne cement production capacity of Jaiprakash Associates, which is trying to raise funds to pare debt.

“Those two assets are now part of the bigger deal,” said one of the two persons cited above, requesting anonymity.

The UltraTech-Jaiprakash deal, signed in December 2014, is the second large transaction in the cement industry to have come unstuck in February because of regulatory hurdles.

Earlier this month, LafargeHolcim called off its Rs.5,000 crore deal with Birla Corp. to sell two cement units in eastern India.

The Franco-Swiss cement giant said it will divest its interest in all Lafarge India assets to comply with the competition rules in India.

Under pressure from its bankers to repay debt, Jaiprakash Associates is looking to find a buyer for its cement units spread across the central, northern and southern parts of the country.

The second of the two persons cited in the first instance said the deadline for closure of the UltraTech-Jaiprakash deal may have lapsed. This person said UltraTech “is fully aware” that the Madhya Pradesh assets would be part of a larger deal.

UltraTech Cement declined to comment. Jaiprakash Associates also declined to comment.

Jaiprakash Associates was supposed to receive binding bids from financial and strategic investors by the middle of February for its entire cement capacity, but bankers are still waiting for more bids to come in by the end of the month, said the first person cited above.

“Companies who were part of the diligence process and are interested to bid include global private equity firm KKR and Co., UltraTech Cement Ltd and Dalmia Cement (Bharat) Ltd but the bids are yet to come in,” the first person added.

Both Dalmia Cement and KKR, in emailed responses, declined to comment on what they described as market speculation.

“If UltraTech ends up acquiring this asset it will be just an incremental addition to their capacity whereas if Dalmia ends up buying the asset it will transcend them into a national player rather than their existing regional concentration,” said Ashutosh Maheshvari, managing director and chief executive officer at Motilal Oswal Investment Advisors Pvt. Ltd.

“Jaypee’s cement assets are spread across three different geographies—Madhya Pradesh, Himachal Pradesh, and Andhra Pradesh—making it a non-coherent deal to do if someone does not have an existing presence in the Indian cement industry,” Maheshvari added.

While the process of selling the cement assets of Jaiprakash Associates has begun, the deal will not go through before a proposed amendment to the existing Mines and Minerals Development and Regulation (MMDR) Act is cleared.

The MMDR Act currently does not allow a company to transfer rights to an allotted mine to another company or subsidiary. Given that limestone is a key raw material in the cement-making process, it is difficult to execute the sale of a cement unit without selling the related limestone mines as part of the deal.

According to a clause in the Act, transfer of the mining licence is allowed only for mines that have been auctioned. Most of the operational limestone mines in India were allotted and not auctioned.

This regulation, in fact, is the reason that the original deal between Jaiprakash Associates and UltraTech Cement failed to close even a year after the agreement was signed.

On 12 January, Mint reported that the government was considering amending the Act to allow for the transfer of mines and that the mines ministry had put up the changes for a review on its website.

Jaiprakash Associates’ proposal to sell all its cement assets will also hinge on this amendment.

“It will be difficult to execute the deal without the amendment clarity on the transfer of limestone mines,” said the second person mentioned above.

LafargeHolcim is trying to sell its stake in Lafarge India Pvt. Ltd in a deal that is currently under negotiations. Jaiprakash Associates, however, does not have this option due to cross-holdings between group companies.

According to a December 2014 investor presentation on the company’s website, Jaiprakash Associates has the group’s engineering and construction, cement, real estate and hospitality businesses under it.

In addition, Jaiprakash Associates holds a 60.72% stake in Jaiprakash Power Ventures Ltd and 71.64% in Jaypee Infratech Ltd.

“There are so many assets and shareholdings under Jaiprakash Associates that it is difficult to execute the deal. If the company looks to transfer all the other shareholdings and assets in Jaiprakash to another company and then sell a 100% stake in Jaiprakash Associates which will hold only the cement assets, it will involve shareholder approvals and a large sum of stamp duty to be paid, which is a very unviable option,” said another investment banker who is not directly involved in the deal but acts as a consultant for cement clients.

For the Jaypee group, the inability to close the deal with UltraTech Cement will mean a delay in its asset monetization plans.

The group had estimated debt of Rs.75,000 crore at the end of fiscal 2015, according to the 21 October edition of Credit Suisse’s House of Debt report.

BOLIVIA: Soboce elevará producción de planta de Viacha en 136%

La Sociedad Boliviana de Cemento (Soboce) impulsa la modernización de la planta de Viacha con un nuevo equipo de molienda que permitirá incrementar la producción de 900 mil a 2 millones toneladas de cemento por año. 

De esa manera la cementera dará un salto tecnológico y modernizará la factoría.

El gerente general de Soboce, José Luis Orbegoso, en respuesta a un cuestionario enviado por Página Siete, informó que el año pasado la compañía inició la duodécima ampliación de la planta de Viacha en La Paz, cuyo objetivo es ensanchar su capacidad productiva con modernos equipos. 

En ese marco, con el proyecto de ampliación denominado Illimani - LP12 se adquirió un sistema de molienda vertical de cemento modelo OK 36-4 del fabricante FLSmidth, además de sistemas nuevos de manejo automático de materias primas, silo, ensacado y paletizado. "Este será el primer molino vertical de cemento que se instalará en Bolivia y, por las características de nuestra planta en Viacha, será el molino vertical instalado a mayor altura en toda América”, explicó Orbegoso.

Los equipos principales del proyecto comenzarán a llegar a Bolivia a partir del mes de mayo de 2016 y la puesta en marcha del proyecto Illimani está previsto para el primer semestre del año 2017.

Durante la fase de implementación del proyecto, se prevé la generación de hasta 500 empleos directos en las actividades de construcción y montaje y unos 1.000 empleos indirectos entre servicios técnicos, de transporte, alimentación y hospedaje en la localidad de Viacha.

Para Soboce este emprendimiento significará un salto sustancial en la capacidad productiva de la empresa, no sólo para atender la demanda actual, sino también para atender la futura demanda de cemento que se prevé será mayor a la actual.

Con la instalación del nuevo sistema de molienda vertical, la planta de Viacha incrementará su capacidad instalada en 136%, pasando de una capacidad actual de 900.000 toneladas al año a más de 2 millones de toneladas por año de capacidad de producción de cemento.

La adquisición del equipo demanda una inversión cercana a los 80 millones dólares.

FLSmidth en su página web detalla que a finales de 1990 ya instaló la línea de producción existente en Viacha y en 2010 un proyecto de expansión que permitió a la planta duplicar su capacidad.

Inversiones

Orbegoso indicó, que en 2015, Soboce inició la implementación de su Plan Estratégico que está orientado al incremento sustancial de su capacidad productiva y cuya inversión prevista es de 270 millones de dólares en los próximos cuatro años.

Los principales proyectos son la ampliación en la planta de cemento Viacha, mejoras en la planta de El Puente, Tarija y la construcción de una nueva planta en Yacuses, Santa Cruz; además de otras mejoras en sus diferentes centros de producción. 

En 2015, la inversión realizada por Soboce fue de aproximadamente 20 millones de dólares. 

Para este año las inversiones previstas son de aproximadamente 76 millones de dólares, de los cuales 50 millones de dólares serán destinados al proyecto Illimani y el resto a otros proyectos en los diferentes centros de producción y, además, en la nueva planta de cemento de Yacses en Santa Cruz, destacó el gerente de la compañía.

Este proyecto está en ejecución con una inversión inicial de 3 millones de dólares y la ejecución total es de 180 millones de dólares.

Los componentes críticos del molino de crudo, horno y enfriador de clinker se encuentran en Arequipa, en la planta de cemento Yura, listos para su embarque y traslado a Bolivia, cuyo valor bordea los 7 millones de dólares, agregó Orbegoso.

Se prevé desaceleración de la demanda 

Este año se prevé una desaceleración de la demanda de cemento en el país, como consecuencia de la situación de la economía mundial y nacional, informó a Página Siete el gerente general de Soboce, José Luis Orbegoso.

Sin embargo, el ejecutivo aclaró que esto no significa que no habrá crecimiento, sólo que el mismo podría ser algo menor al registrado en 2015, que estuvo alrededor del 5%. 

"Existen proyectos públicos y privados, como la construcción de viviendas y carreteras cuya realización significará el dinamismo del sector en 2016”, precisó.

Soboce proyecta incrementar la producción en algo más de 10.000 toneladas de cemento para llegar alrededor de las 1.550.000 toneladas.

En la pasada gestión, la producción total superó las 1.540.000 toneladas de cement,o lo que significó cerca del 42% del mercado nacional, cuyo volumen fue de un poco más de 3,7 millones de toneladas. 

Las ventas de Soboce superaron las 1.548.000 toneladas de cemento.

SAUDI ARABIA: Saudi cement producers push for 20% export

Cement supply exceeds demand which is projected at 60 mln tonnes in 2016.

Saudi cement producers will meet government officials soon to discuss lifting the ban on their exports by around 20 per cent, a Saudi daily reported on Thursday.

The Gulf Kingdom’s cement companies will in turn ensure a two-month supply for the local market, the Arabic language Alyaum newspaper said, quoting Abdullah Ridwan, chairman of the construction and property committee at the Jeddah chamber of commerce and industry.

“The cement companies in the Kingdom are preparing to meet representatives from the commerce and industry ministry to discuss allowing them to export 20 per cent of their production……if the export is approved, the companies will be committed to supplying the local market with production for two months,” he said without specifying a date for the talks.

Ridwan said cement supply in the Saudi market is currently higher than demand, warning that some cement firms could suspend production if they are not allowed to export their surplus output.

“This is because demand is currently weak…if the companies are allowed to export that quantity, this will positively affect the market and their business,” he said.

The paper quoted a Saudi cement company executive as saying cement could be exported to the other Gulf Cooperation Council (GCC) members as well as Sudan and other African nations, Spain and Latin America.

“The cement companies in the Kingdom need to export because they have been adversely affected by the increase in domestic fuel prices…we will give guarantees to provide the local market with sufficient cement quantities in case the commerce and industry ministry agrees to partially lift the ban on exports, “ said Safar Dhafeer, CEO of Southern Province Cement Co.

He expected cement demand in Saudi Arabia, the largest Arab economy, to remain almost unchanged at around 60 million tonnes in 2016 compared with 2015.

KENYA: East African Portland Cement to restructure funds to boost earnings

Cement maker East African Portland wants to acquire strategic limestone reserves in Kitui and Kajiado and restructure its finances to remain profitable, management said yesterday.

The company whose earnings for the last financial year were largely boosted by land sale to government for the Standard Gauge Railway and unrealised gain on reevaluation of investment property has been facing stiff competition in the market leading to lower revenues.

EAPCC managing director Kephar Tande said the company will acquire strategic limestone reserves in Kitui and Kajiado for its operations.

“Ongoing efforts on innovation and product diversification will see the full commercialisation of the precast manufacturing plant, thereby introducing new products to the company’s product portfolio in order to increase revenue base," he added.

An over 300 per cent rise in the value of land owned by EAPCC in Athi River boosted its compensation payout from the government last year, for acquired railway land.

At its annual general meeting held yesterday in Athi River, the management told shareholders that the Sh836 million compensation pay it got for the compulsory acquisition of part of its land earmarked for SGR, was due to a major rise in the value of that property.

EAPCC's two parcels of land in Athi River were valued at Sh9.4 billion up from Sh2.25 billion of the previous year - a whooping 317.8 per cent appreciation.

The hefty pay coupled with an unrealised gain on revaluation of investment property, amounting to Sh7.2 billion, boosted the firm's profit before tax for the full year ended June 30, 2015 to Sh7.3 billion. The earnings were further boosted by forex gains of Sh175 millions on its hedged Japanese yen loan.

The management of EAPCC, whose revenues have been declining, told shareholders that it is exploring ways of restructuring the company's finances as part of long-term strategy for growth.

“The company has completed several projects that are expected to impact positively on the performance going forward,” chairman Bill Lay told investors at the firm's 83rd annual general meeting held in Athi River yesterday.

NIGERIA: BUA in talks with China's Sinoma over $1.9 billion steel, cement deal

Nigerian conglomerate BUA Group is in talks with China's Sinoma to build a steel plant in Nigeria and two cement plants in East Africa for $1.9 billion, its chairman said.

Expansion plans by Nigerian firms have slowed as Africa's biggest economy grapples with a slump in oil prices which has dried up vital oil revenues and forced firms to lay off staff.

Abdulsamad Rabiu said the unlisted company was talking to the Chinese firm for a construction package which includes financing, building on an existing relationship. Both firms already agreed in September on a $600 million cement expansion in the West African nation.

He gave no details on the funding but Nigeria has been in talks with China's state export and import bank for a loan to spur investments of Chinese firms in Africa's top oil exporter.

The two cement plants, which will have an annual capacity of 3 million tonnes each, will cost $700 million. The steel plant, with a capacity of 1.2 million tonnes, will cost $1.2 billion.

"We have identified two countries that we believe hold great opportunities for us in terms of building integrated plants," Rabiu told Reuters on Wednesday, declining to name the countries in East Africa.

"With the (fall) in the price of commodities ... we can do them much cheaper than what it would have cost some years ago," he said. The construction of the Nigeria-based steel plant would include a 200 megawatt power plant.

Rabiu said the expansion would help BUA to tap demand to lower reliance on import-dependent businesses such as sugar as a slump in oil prices made it difficult to generate dollars.

The West African nation has its own iron supply, while the sugar industry depends on imports.

BUA is considering shutting its sugar refinery in Lagos next month because it could not get the hard currency needed to import raw materials, Rabiu said.

The central bank has imposed restrictions to halt a slide of the naira but Rabiu said it would eventually have to let the official rate fall to between 250 to 270 against the dollar by year-end.

The currency has fallen 45 percent on the secondary market below its official rate of 197 naira NGN=D1. "The biggest challenge is the sourcing of foreign exchange," Rabiu said.

BUA's main rival, Dangote Cement (DANGCEM.LG), has also been expanding with Sinoma, signing in September a $4.34 billion deal with the Chinese firm to almost double its capacity across Africa.

WORLD: The need for a sustainable approach in cement production

One of the most important of all building materials, cement is also one of the most polluting, with significant amounts of greenhouse gases released during production.

Cement manufacturing begins with mining limestone and burning it in gas and coal fired kilns at extremely high temperatures (approx. 1450°C) to transform it into a lumpy grey material known as clinker. This clinker is then crushed into cement powder in grinding mills.

Cement is the ‘glue’ that binds sand and aggregate to make concrete in construction work. Concrete’s ready availability, durability, versatility and relative cost ensure its continued (and growing) use in the building industry.

However, cement is highly polluting due to the significant levels of greenhouse gas emissions, which occur primarily during the chemical reaction when limestone is burned releasing CO2-e. The mining of limestone and transport of cement together with the energy required add further to the CO2-e output. With 900 kilograms of CO2-e estimated to be emitted for every tonne of cement manufactured, the cement industry alone generates approximately 5 per cent of global CO2-e emissions.

Having recognised the severity of the environmental issues associated with cement manufacturing some years ago, Independent Cement and Lime invested heavily in the development and production of a more environmentally sustainable alternative to cement - Ecoblend.

INDIA: Cement demand to double in FY17 on high govt spending on infra, construction sectors

Cement demand has registered single-digit growth rate in the last six financial years, with the weakest growth in the decade of 2.2% during April-December 2015

Even as demand from the housing sector remains weak, ratings agency India Ratings and Research (Ind-Ra) expects cement demand to double in financial year 2016-17 and grow at 4-6%, double the growth in 2015, on the back of government spending in the construction and infrastructure segments. 

It also estimates cement demand to grow by 3% in FY16E, compared with 5.6% in FY15. 

Cement demand has registered single-digit growth rate in the last six financial years, with the weakest growth in the decade of 2.2% during April-December 2015. 

"Ind-Ra's FY17 Outlook for Cement Manufacturers, expects the improvement in demand in FY17, on the back of a slightly better demand from the construction and infrastructure segments led by government spending," a statement said. 

However, the rating agency does not expect any significant revival in housing demand, in either rural or urban areas, which would keep the overall cement demand growth mid-single digit. 

Cement demand in the current financial year was weak due to the slowdown witnessed across key demand drivers, rural housing (around 40% of cement demand), urban housing (20%-25%) and construction/infrastructure/industrial activities (around 25%). Commercial real estate accounts for 10% of the cement demand. 

"The growth rate so far in this fiscal year was also impacted due to the high base in the corresponding period last fiscal year. Cement demand grew 8.4% during April -November 2014 (FY15: 5.6%)," the agency said.

PAKISTAN: Fauji Cement’s earnings surge 67%

Fauji Cement (FCCL) announced a net profit of Rs2.77 billion in the first six months (Jul-Dec) of fiscal year 2015-16 (1HFY16), up a significant 67% compared to the same period of last fiscal year, according to a company notice sent to the Pakistan Stock Exchange (PSX).

Earnings per share (EPS) jumped to Rs2.09 compared to an EPS of Rs1.25 in the period under review.

In the second quarter, the company posted a net profit of Rs1.67 billion (EPS of Rs1.21), up 52% quarter on quarter from preceding quarter profit of Rs1.1 billion (EPS of Rs0.83).

The company also announced interim cash dividend of Rs1.75 per share (2QFY15: 1.00/share).

On Tuesday, PSX 100-Index closed on 31,673, down 254 points or 0.8% while Fauji Cement share closed at Rs39.66, down just 0.05%.

The company witnessed a 24% quarter on quarter rise in dispatches (751,000 tonnes in 2QFY16) owed to improved domestic/export demand (up 24% and 26%, respectively), coupled with stable cement prices in the north region of the country, resulting in a 27% sequential growth in turnover.

Gross margins expanded by 600 basis points during 2QFY16 to 48%, in contrast to 43% in 1QFY16 due to lower average coal prices which dipped 8.7% quarter on quarter in 2QFY16 along with contracting fuel costs amid dwindling oil prices. While 1HFY16 gross margins rose 11 percentage points to 46%.

The selling and distribution expenses escalated by 57% quarter on quarter to Rs58 million.