Front Page
Politics
Economy
International
Sports
Society
Culture
Videos
Newspapers
Ahram Online
Al-Ahram Weekly
Albawaba
Almasry Alyoum
Amwal Al Ghad
Arab News Agency
Bikya Masr
Daily News Egypt
FilGoal
The Egyptian Gazette
Youm7
Subject
Author
Region
f
t
مصرس
URGENT: No rush to cut policy rate – Fed board member
Feerum Egypt invests EGP 1.6bn in new grain storage silo factory in East Port Said
Egypt approves EGP 6.4trn budget, aims to cut deficit, boost social spending
World Oral Health Day Awareness Initiatives by Haleon Launched in Collaboration with World Dental Federation (FDI)
USD nudges down against EGP – CBE
Opinion| Palestinian blood and sharing of gains between Hamas and Fatah
Yen drops to 34-yr low against US dollar
Shoukry welcomes Palestinian Fatah delegation
18 Palestinians killed due to incorrect airdrop of aid
Egypt begins clearing 20% of debt to foreign oil firms
SK Hynix plans $4b investment in Indiana
BRICS bank plans to provide $5b loans in '24
Unveiling Egypt's treasures: Ancient wonders and captivating landscapes
Exploring Ramadan in Cairo: A journey through history and culture
Pakistan embraces Cairo with cultural evening during Ramadan nights
Egypt advances waste management with new sanitary landfills
Multinational firms consider reducing risk in China
Government officials sign contracts for EGP 565m solid waste management system in 5 governorates
Swiss Lonza agrees to acquire Roche for $1.2b
Egypt starts construction of groundwater drinking water stations in South Sudan
AstraZeneca caps inhaler costs at $35 per month
Russians in Egypt vote in Presidential Election
Egyptian, Japanese Judo communities celebrate new coach at Tokyo's Embassy in Cairo
Al-Sisi reaffirms Egypt's commitment to keeping Rafah crossing open
Alexandria Photo Week draws 15,000 visitors, showcases city's rich history, photographic talent
Uppingham Cairo and Rafa Nadal Academy Unite to Elevate Sports Education in Egypt with the Introduction of the "Rafa Nadal Tennis Program"
Egypt's powerhouse 'The Tank' Hamed Khallaf secures back-to-back gold at World Cup Weightlifting Championship"
Financial literacy becomes extremely important – EGX official
Euro area annual inflation up to 2.9% – Eurostat
Egypt builds 8 groundwater stations in S. Sudan
BYD، Brazil's Sigma Lithium JV likely
WFP delivers 1st Jordan aid convoy through Israeli crossing
Breaking: Sisi wins third term as Egypt's president with 89.6% of vote – NEA
UNESCO celebrates World Arabic Language Day
Motaz Azaiza mural in Manchester tribute to Palestinian journalists
Türkiye suspends all league games after club president punched referee
Russia says it's in sync with US, China, Pakistan on Taliban
It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game
Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights
Sudan says countries must cooperate on vaccines
Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19
Egypt to tax bloggers, YouTubers
Egypt's FM asserts importance of stability in Libya, holding elections as scheduled
We mustn't lose touch: Muller after Bayern win in Bundesliga
Egypt records 36 new deaths from Covid-19, highest since mid June
Egypt sells $3 bln US-dollar dominated eurobonds
Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go
Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform
Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.
OK
Swamped in cement
Sherine Abdel Razek
Published in
Al-Ahram Weekly
on 11 - 01 - 2001
By Sherine Abdel-Razek
Once again the Egyptian cement sector has captured the limelight. The excitement began last February when fierce battles raged over the acquisitions of majority stakes in five cement companies which resulted in giving four multinational cement companies a significant foothold in the sector which is now 30 per cent foreign-owned.
One month later, things calmed down when the government announced that it would put on ice further privatisations in a sector that it considers "strategic." But things may heat up again following the government's reversal of this decision in late December.
At that time, the Ministerial Committee for Privatisation approved the expansion of the ownership base of
Helwan
Cement through the sale of 48.7 per cent of its shares: 20 per cent on the stock market, and 27.8 per cent to a strategic investor. This move came after a Saudi investor expressed interest in buying the state's 47 per cent stake.
As of press time, only
Suez
Cement had made an offer to buy the stake and the amount of its offer has not been made public. Following its acquisition of Torah Cement last year,
Suez
Cement became the biggest company in the sector with a market share of 30 per cent.
But experts are sceptical that an acquisition deal now would be as attractive to investors as it was last year. A year ago, the economy was in better shape and the cement sector itself appeared more promising. Amidst a flurry of activity for infrastructure and mega-projects in 1998-1999, demand for cement increased dramatically. And, at the time, the fledgling Egyptian Cement Company (ECC) -- a joint venture between Orascom and the Swiss Holderbank -- seemed not to pose a threat to state-owned companies. Added to this, environmental restrictions on the expansion of cement factories were much less stringent.
Since then, the recession has cast a shadow over the sector. A report by Flemings-CIIC says that the growth rate for the demand of the product declined to 1 per cent over the nine month period ending in March 2000. In contrast, during 1998-1999, this grew by 14 per cent. It also points out that while cement wholesalers formerly paid for the product two to three months in advance, they no longer do this. The chronic supply deficit which motivated this practice no longer exists due to the increase in productive capacities and a slow down in construction activities.
Taher Gargour, senior analyst at HSBC says that while things improved marginally for the sector during the second half of last year, overall demand for cement during the year 2000 declined by 2 per cent compared to 1999.
In spite of limited demand, productive capacity is growing by leaps and bounds. In less than twelve months since the inception of its operations, ECC added 2.9 million tons to Egypt's annual cement production and cornered a 12 per cent market share. The British Blue Circle cement company is investing heavily to increase the capacity of
Alexandria
Cement, in which it had acquired a 76 per cent stake in late 1999. And a handful of private companies are expected to add to this within the next two years.
Flemings-CIIC's report predicts that the productive capacity of seven factories currently under construction, in addition to those in the pilot phase, will be approximately seven million tons annually. Thus, during fiscal year 2001-2002, Egypt's cement surplus is predicted to reach 4.2 million tons.
The impact of such a surplus is not hard to fathom. "We may soon see an oversupply which will make current prices even lower," says Ignacio Madridijos, president and chief executive officer of the Mexican company Cemex, which invested $372 million last year to acquire 90 per cent of Assiut Cement. Madridijos pointed out that the cost of Egyptian cement is already 50 per cent less than the international price.
In spite of its grim predictions, Flemings-CIIC's report still offers some hope. If the draft mortgage law is passed, this will likely reinvigourate the construction industry and thus jump-start the demand for cement. The report also cited the government's plan to repay its debts as a factor which would improve the economic outlook and thus ultimately improve the situation for cement producers.
But what about the
Helwan
Portland Cement (HPC) offering in particular? "It will not attract investors. This is due to the small size of the offering and the low quality of
Helwan
Portland assets," says Gargour.
All of the cement company offerings last year were for majority stakes. For factories in
Beni Suef
, Assiut and
Alexandria
, offerings were for 95, 90 and 76 per cent stakes, respectively, while for those in Amiriya and Torah they were 91 and 65 per cent, respectively. Gargour suggested that no local or foreign investor would be interested in buying a stake of 50 per cent.
And HPC's performance does little to sweeten its appeal. Its profits declined by 10.6 per cent during 1999 compared to 1998. It had a price earning ratio of 4.73 compared to a market average of 6.29 in October. On the last day of trading for 2000, the company's share went for LE39.
And HPC's potential for improvement would seem to be hampered by the quality of its assets. According to a report issued by the Commercial International Brokerage Company (CIBC), HPC suffers from production inefficiencies as well as having the highest emission levels among cement companies. Added to this, environmental protection laws limit its options for horizontal expansion because of its location in an urban area.
But the company's vision is more optimistic, as evidenced by its Web page. Located in
Helwan
, a
Cairo
suburb to the south of the city, on approximately 890,000 square metres, HPC has 10 production lines and produces a variety of grades of cement. Its assets also include a factory in Samalout, in the upper Egyptian governorate
Minya
, located near limestone quarries providing the raw material for the white cement it produces. This factory is Egypt's sole producer of this higher-priced fine grade of cement used for finishing. This position as the only producer of white cement is a factor that HPC views as giving it a competitive advantage.
But so far, HPC has attracted little interest beyond
Suez
Cement. Madridijos said that Cemex might consider bidding for the offering pending the outcome of its research.
Ultimately, the cost of the stake may prove the determining factor. HPC's stake is expected to be offered for much less than the stakes of peers sold last year. A ratio for the enterprise's value compared to its capacity (EV/Cap) is used by those in the industry to assess its productivity. This ratio compares assets against number of tons produced. For HPC this is expected to fall within a range of $80-100. Worth mentioning is that the lowest of last year's sales was that of Torah cement at $124, while the highest -- at $257 -- was paid by Lafarge to acquire
Beni Suef
cement company.
The experience of last year's cement privatisations is expected to push the government to adopt an approach towards foreign investment in this sector that is both more cautious and more pragmatic. During this process it created Al-Ahram Cement to bid for Amiriya Cement in an attempt to avert foreign dominance of the sector. As Al-Ahram Cement was owned by several public sector companies, its establishment was viewed as a kind of backtracking by the government on its privatisation plans.
Related stories:
Cementing a trend 24 Feb. - 1 March 2000
© Copyright Al-Ahram Weekly. All rights reserved
Send a letter to the Editor
Clic
here
to read the story from its source.
Related stories
Looking for inspiration
Winning at risky business
Eventful but slow
A bumpy week
COMPANY PROFILE: Suez Cement steps over stumbling blocks
Report inappropriate advertisement