CNBM plans 33b yuan expansion
China National Building Materials (CNBM) has set its sights on leading the cement markets in southern China and the Huaihai area by investing 33.3 billion yuan to lift annual cement output to 174 million tonnes by next year from just 11 million tonnes in 2006.
The company announced on Wednesday that it had entered into 12 separate agreements to acquire stakes in private cement rivals for a total of 4.33 billion yuan. The acquisitions are expected to contribute capacity of 24 million tonnes.
The 12 deals come on top of 61 other mergers and acquisitions, for which the company has signed memorandums of understanding. Management hope that the deals, negotiated over the past year and estimated to be worth 28.97 billion yuan, could be closed by next year.
'Another 90 million tonnes of capacity will be added if we can complete these acquisitions,' said president Thomas Cao Jianglin.
Mr Cao said CNBM planned to finance its expansion by raising 60 per cent of capital from borrowings and 40 per cent in the equity market.
The company is waiting for the approval of shareholders and the China Securities Regulatory Commission to issue a maximum of 300 million new H shares.
'To issue new H shares is the quickest way to raise capital,' said Mr Cao.
The company is also considering an issue on the A-share market, but no details were provided.
'We believe that by enlarging our market share in the targeted regions, we will gain bargaining power on pricing,' Mr Cao said.
According to the firm's figures, cement prices have risen between five yuan and 15 yuan per tonne each year over the past three years.
Up to the end of last year, the price per tonne of cement in Zhejiang was 300 yuan; in Sichuan and Chongqing, 500 yuan; in Hainan, 720 yuan; and in Guizhou, 1,000 yuan.
Mr Cao expressed confidence that hefty investment in building infrastructure domestically would continue to fuel high growth for the industry.
'Besides infrastructural development, the central government is also building lower-income housing,' he said. 'That will bring with it strong demand for cement.'
Even the recent snowstorms will benefit the company because reduced supply will push up prices with some cement factories forced to close due to power shortages.
Shares of the company closed 4.73 per cent lower at HK$17.32 yesterday.