Semen Indonesia to buy LafargeHolcim’s Indonesian unit

Indonesia's largest cement producer, Semen Indonesia, is buying the local business of LafargeHolcim for around US$940m. LafargeHolcim is disposing of its entire 80.6 per cent shareholding in Holcim Indonesia.

The transaction will merge the operations of Indonesia's largest and third-largest players, representing a significant consolidation in the industry. PT Semen Indonesia currently holds 40.8 per cent of the market while PT Holcim Indonesia has a market share of 14.6 per cent. The deal will result in a combined total of 55.4 per cent of the market. However, given the status of the state-owned Semen Indonesia, analysts do not expect any challenges for the companies involved to obtain the necessary regulatory approvals.

The scope of the acquisition includes four cement plants, 33 ready-mix plants and two aggregate quarries. The acquisition "will provide it with a significantly larger capacity and broader product portfolio and geographical footprint," Semen Indonesia said in a statement. At present Semen Indonesia operates a cement capacity of 35.5Mta and a clinker capacity of 26.2Mta. PT Holcim Indonesia’s cement works have a combined cement capacity of 14.8Mta and a total clinker capacity of 10.45Mta. In addition, it will enable Semen Indonesia to lower distribution and raw material expenditure and to save further costs by applying a LafargeHolcim waste fuel technology.

LafargeHolcim sees the step as part of its ongoing portfolio review that sees the company cut costs and focus on fewer markets. "As part of our Strategy 2022 – 'Building for Growth' we have committed to divestments of at least CHF2bn. Today’s announcement is an important milestone in reaching our target and to increase our financial strength. The proceeds from this transaction will significantly improve our debt ratios with the target of two times Net Debt to Recurring EBITDA to be achieved by the end of 2019," said Jan Jenisch, CEO of LafargeHolcim.

However, proceeds to LafargeHolcim will be lower than the reported US$1.75bn. "Adjusting for the US$580m of debt at Holcim Indonesia and adjusting for LHN’s 80.6 per cent share suggests that LafargeHolcim’s equity stake is valued at ~US$940m," according to analysts at Bernstein.

Semen Indonesia, which is 51 per cent owned by the Indonesian government, is understood to have outbid several other interested parties, including HeidelbergCement and Taiheiyo Cement, according to sources familiar with the deal.