InterCement for sale?
Once again, there is speculation that Camargo Corrêa, the Brazilian conglomerate, is seeking to dispose of InterCement, its subsidiary and controlling shareholder of Cimpor SGPS. In mid-2015 the indebted Camargo Corrêa, which derives 42 per cent of its revenues from InterCement, had looked to sell a stake in the subsidiary, and more recently new suitors have emerged.
To reduce its net debt burden, which stood at four times its EBITDA of 2015, InterCement has slowly been divesting non-core assets in the past two years. It sold a 16 per cent (US$35m) participation in Yguazu Cementos in December 2015, although it still controls a 51 per cent interest in the Paraguayan cement producer via its subsidiary Cimpor. However, the big announcement came in December last year, when InterCement opened talks to dispose of a 40 per cent stake in Loma Negra of Argentina.
Through Cimpor, InterCement controls 47Mta of cement capacity globally, with a portfolio from which it might divest that includes operations in South America (Brazil, Argentina and Paraguay), Europe (Portugal) and Africa (Egypt, Mozambique, South Africa and Cape Verde).
Does Cemex have aspirations for the Brazilian market?
Reports indicate that Cemex and another unnamed Latin America cement producer would be interested in the US$6.47bn InterCement. Despite the present low level of cement consumption in Brazil, InterCement's operations in the country provide a good strategic fit. InterCement controls about 20 per cent of the market and 14Mta of cement capacity, making it the country's No 2 behind Votorantim Cimentos. Meanwhile, Cemex currently has to import cement into Brazil via a terminal 20km from Manaus on the Amazon River. In addition, the extra 8Mta of cement production in Argentina could catapult the Mexico-based cement producer to the No 1 spot in domestic production.
The acquisition would also add 9Mta of Cimpor capacity in Portugal to Cemex's European operations. At present Cemex has a strong representation of six plants in Spain and the UK. The Cimpor Natal assets in South Africa could add to further consolidation in South Africa, where PPC and AfriSam are currently considering the merits of a merger. Furthermore, Mozambique’s market is growing and the 1.6Mta Cimpor subsidiary Cimentos de Moçambique has a considerable 62 per cent share of the market. In Egypt Cemex could also add the Amreyah Cement plant to its operations in Assuit to give it a cement capacity of more than 10Mta and about 12 per cent of the market in Egypt, subject to the competition authority's approval.
However, following the acquisition of Trinidad Cement Ltd in the Caribbean, it remains to be seen whether Cemex has the necessary financial fire power to realise such an acquisition. To fund such a deal, Cemex could well look to divest certain assets, especially where competition issues arise. This could see Cemex reducing its influence in the USA, where it has already declined to support the building of Donald Trump's border wall. However, it still operates 13 cement plants in the country and plants in the southern states could support its newly-acquired Caribbean operations.
According to Jean-Christophe Lefèvre-Moulenq, industry analyst at CM-CIC Market Solutions, the alternative for Camargo Corrêa is to raise funds by increasing Cimpor's free float (currently only 0.5 per cent). However, the chance to acquire an attractive global porfolio of cement assets is certain to attract plenty of interest going forward.
