The last year has seen InterCement Participacoes (Mover) work hard to divest parts of its cement business to lower its debt. It is now being courted by several leading cement producers that are looking to make bids for further of the company's assets, making it likely that more divestments will be agreed before May and July, when the Brazilian company's latest set of debts are set to mature.
Last week's statement from InterCement about having "received a series of inquiries and expressions of interest in its assets" did not come out of the blue. In August 2020 the company sold its 51 per cent stake in Yguazú Cementos in Paraguay. In January 2023 InterCement announced the sale of its Egyptian operations, leaving it with an overall cement capacity of 35Mta worldwide. This was followed in December 2023 with the sale of its cement businesses in South Africa and Mozambique to Huaxin Cement for approximately US$231.6m.
Concluding these sales the company announced, "The sale of the remaining operations in Africa contributes positively to the group’s ongoing deleveraging plans and to accelerating its strategic positioning, focussing on its main markets in South America."
Brazil and Argentinian operations under threat
Now the debt burden has reached the door of the company’s assets in Argentina, Uruguay and Brazil. With a portfolio still amounting to 23 factories and approximately 29Mta of cement, InterCement reported in the 3Q23 that it has a total debt of US$1774m and net debt of US$1593m with a leverage of 3.8x. It has a huge tranche of US$549m senior notes maturing in 2024, as well as other debentures and senior notes for Loma Negra.
The Loma Negra subsidiary operations in Argentina are 51 per cent owned by InterCement, which generates approximately 50 per cent of the company’s consolidated adjusted EBITDA but holds only nine per cent of its debt. This is likely to make the Loma Negra assets a main prize for potential bidders. The Argentinian subsidiary also owns a minority 0.16 per cent shareholding in Uruguay’s Cementos Del Plata SA, which is majority owned by ANCAP.
In Brazil, InterCement may wish to hold on to its most productive cement plants, the largest of which are the 3.2Mta Apaí plant in São Paulo and the 2.1Mta Cezarina cement works in Goías. However, the InterCement that emerges from this round of divestments will be a slimmer and smaller business.
Fitch Ratings downgraded InterCement to CCC from B- in March 2023. The increasing interest rates added further headwinds to the company’s already unsustainable capital structure. Added to this, the highly-volatile markets of Brazil, Argentina, Egypt, Mozambique and South Africa provided cash flow difficulties in 2023.
Opportunity to buy into Latin American markets
The financial difficulties that InterCement faces will provide potential asset strippers with a way into Latin American markets, or the chance for some to expand existing their market share in Brazil, Uruguay and Argentina. This is expected to include Huaxin Cement, CSN and Votorantim Cimentos. Currently CSN has approximately a 20 per cent market share in Brazil and market leader Votorantim holds a market share of 35 per cent. However, Votorantim’s participation in the process will include Plimix and Buzzi.