Analysts may ponder whether cement production in Vietnam is entering a crucial phase as this week the Ministry of Construction announced that it would be divesting a large stake in the Vicem cement group with a public offering in the 4Q16. Cement oversupply in the market is increasing while exports have been difficult and as cement prices come under pressure, consolidation appears now unavoidable.
Vicem also holds 35 per cent of shares in Holcim Vietnam, a member of the LafargeHolcim Group, and it is possible that Vicem will move to buy the stake divested by the multinational and prepare for a new era.
LafargeHolcim is to hold a public bid to find a partner at the end of July. Speaking recently to Vietnam Breaking News, Luong Quang Kai, chairman of Vicem’s board of members, said: “Vicem wants to take the wheel in its joint ventures and to increase its holdings, but it depends on the price LafargeHolcim sets, as well as Vicem and its consultants’ valuation of the company and its growth prospect.” He added: “I cannot yet say whether Vicem is going to buy the whole stake or a part, or even sell its holding."
Nevertheless, there are clearly changes on the way for ownership in the Vietnamese cement industry. With a 24.45Mta production base, Vicem supplies currently around 35 per cent of the domestic market. The addition of Holcim Vietnam's capacity is an affordable way to build its position as the country's leading cement producer. However, the state-owned enterprise is more of a collection of entities rather than a producer with a single voice. Changes within the Vicem group could now be afoot with its own IPO in 4Q16. The Vicem IPO will include parent company Vicem, Vicem Hai Phong, Vicem Hoang Thach, Vicem Tiam Diep and Vicem Cement Technology Institute, still leaving the Ministry of Construction with 51 per cent of the shares and effective control of the entity after the IPO.
Meanwhile, time for consolidation has come. The government's Masterplan calls for larger and more efficient plants as the country currently has 62 cement manufacturers with average plant capacities of 1.32Mta. In comparison, Indonesia's cement is produced by 12 companies with plant capacities averaging 6.38Mta and Thailand's production base has eight companies with average plant capacity at 7.55Mta.
In this consolidation process, Vicem has a key role to play. The group has been an instrument to help direct the industry to move in line with the government's view on sector development (see ICR June 2016). Earlier in 2016, analysts StoxPlus reported that the share capital of Ha Long and Song Thao cement companies had been transferred to Vicem for restructuring.
In addition, StoxPlus observes that new investment costs per unit for a cement plant in Vietnam are running at US$170-180/t, but recent merger and acquisition deals in the sector are priced closer to US$105/t. The appetite and attraction for consolidation in the industry is evident and the pace for this may well be quickening, while new projects face delays and rising costs.
In the background there is also the growing competition from foreign importers like Siam Cement Group which is also keen on either building a greenfield plant or entering the market more fully with a merger or a joint venture. PT Semen Indonesia also has the capability of expanding its market share in Vietnam where it has already invested a 70 per cent share in Thang Long Cement.
Crown Cement earned a profit after tax of BDT1001m in FY24
Crown Cement PLC, in Bangladesh, recently released its annual report for FY23-24. During the las...