Cement industry garnering increased foreign interest

Acquisition of local cement companies much cheaper than building new plants, say analysts.

Recent deals in which Thai companies have purchased shares in local cement groups, costing hundreds of millions of dollars, show that Vietnam’s cement industry remains very attractive for foreign investors despite currently being mired in difficulties, according a report from the Vietnam News Agency (VNA).

A few months ago, the Lafarge Holcim Group signed a deal to sell a 65 per cent stake in Holcim Vietnam to Thailand’s Siam Cement City Public Co Ltd (SCCC) for $580 million. Holcim Vietnam was renamed the Siam City Cement Vietnam Co., with products now marketed under the INSEE brand.

The SCG Cement-Building Materials Co Ltd, a subsidiary of the Siam Cement Group (SCG), recently bought shares in the Vietnam Construction Materials JSC for $156 million.

Analysts said the acquisitions were much cheaper for the Thai companies than building their own cement plants. Building a new plant in Vietnam would cost $170-180 per ton of cement produced, while acquisitions bring this cost down to $105-110.

With their financial and administrative advantages, Thai companies can easily take on their Vietnamese rivals.

A Ministry of Construction official was quoted by VNA as saying it was inevitable that foreign companies would invest in Vietnam’s cement industry considering the enormous opportunities it offers them. The strong recovery in the real estate sector and the resumption of many major construction projects are important reason for the rise in demand for building materials.

But how do Vietnamese cement companies benefit from these M&A deals?

According to the Vietnam Association of Finance Investors, one of the many benefits is that Vietnamese cement companies will have access to massive resources to improve their technology and equipment and management and expand their export markets by taking advantage of the distribution systems of their foreign investors.

It added that to attract foreign investors in the cement industry, the government should remove the foreign ownership limit in the industry, which currently stands at 49 per cent.

The Vietnam Construction Association did not oppose the M&A deals but nevertheless warned the government not to allow foreign businesses to take advantage of the current difficult situation in the industry to take over domestic companies. That would affect the country’s interests, it said.

The Vietnam Materials Association concurred, saying the government should not allow Vietnamese cement companies become a mere source of raw materials, energy, and labor for foreign companies. Local companies should be restructured to become competitive and take control of the market.

by Quoc Uy / VET