Holcim cements groundbreaking China deal

Business was on track in 2005 Keystone

Swiss cement maker Holcim announced on Tuesday that it plans to buy a majority stake in a Chinese cement company.

Holcim will be the first to use a pilot scheme that lets foreign companies take controlling stakes in listed firms by buying shares mostly limited to domestic investors.

Holcim, the world’s second-largest cement maker, will expand its stake in the mid-sized Huaxin Cement to more 50.3 per cent from 26.1 per cent. The deal will be worth about $125 million (SFr158.56 million).

Holcim competes with France’s Lafarge, the world’s number one in the industry. Lafarge said last year it wants to boost investment in China over the next three to four years.

The news comes as the Chinese government’s moves to cool the construction industry have forced many local cement makers out of business and driven down prices.

It is part of China’s overall plan to slow rampant economic growth.

Chinese analysts speaking to the Reuters news agency said the Holcim takeover should win “easy approval” since the Chinese government is “encouraging foreign firms to take part in the reform of its listed companies”.

Precedent

“It will set a precedent,” said Cao Jianming of Orient Securities in Shanghai. “We expect many foreign firms to follow suit as they show interest in China’s robust economic growth amid the country’s quickening pace of reforms.”

China issued new rules last November which let foreigners take strategic stakes in publicly traded firms.

Analysts said the time was right to buy Chinese cement makers because domestic cement prices were now low while two coal and electricity were unusually expensive.

The average price of cement in China hit a historical low of 260 yuan per ton ($32) last year.

“Cement stocks are now very cheap and are good bargains,” Fu Meiwang of Haitong Securities told Reuters. “In contrast, we see improving prospects for the domestic industry, which is likely to walk out of its low tide within two years.”

China’s construction-intensive economy grew 9.9 per cent last year, helping push national cement output to 1.05 billion tons, up from 934 million tones in 2004 and accounting for half of the global total.

swissinfo with agencies

Key facts

Financial figures, 2005:
Sales: SFr18.468 billion (+39.8% compared with 2004)
Operating profit: SFr3.316 billion (+47.3%)
Net income: SFr1.54 billion (+74.8%)
Proposed dividend: SFr1.65 gross (up SFr0.40)
Staff at end of 2005: 59,901 (+27.7%)

In brief

Holcim is the world’s number two cement maker behind Lafarge of France.

It was formerly called Holderbank, taking its name from a village in northern Switzerland where it was founded in 1912.

Swiss industrialist Thomas Schmidheiny is a major shareholder in the company.

Holcim holds majority and minority interests on more than 70 countries on all continents.