SINGAPORE (Apr 22): The listed entity once known as Compact Metal Industries has pivoted from a struggling aluminium parts maker into a cement producer called International Cement Group. ICG plans to set up cement plants across parts of the developed world. By the end of the current financial year ending Dec 31, 2019, it expects to own stakes in three plants with a combined capacity of 3.4 million tonnes per year.
To fund this growth, ICG will need more capital. For now, it has no firm plans to tap the market, as it is still on the lookout for suitable projects. This is likely to change, however. “You can’t expand without public funds; to depend on your own funds would be wholly insufficient,” says chairman Ma Zhaoyang in an interview with The Edge Singapore.
ICG aspires to emulate Switzerland’s Lafarge-Holcim, Germany’s Heidelberg-Cement Group and China’s Anhui Conch Cement — listed cement companies with significant shares in the markets where they operate.
For FY2018, Compact Metal Industries recorded earnings of $16 million, a significant turnaround from losses of $1.5 million in FY2017. Revenue in the same period grew to $114.1 million from $41.1 million previously. Eighty-three per cent of FY2018 revenue was contributed by ICG’s newly acquired 65% stake in a cement plant in Tajikistan. The remaining revenue was from its legacy aluminium business.
The stake in the Tajikistan cement plant was previously held by an entity controlled by Ma and another ICG director, Zhang Zengtao. In 2017, ICG bought the stake for $180 million, satisfied by the issue of 4.5 billion new shares at four cents each, thereby raising their shareholding in the company.
Currently, Zhang and Ma owns just under 80% of ICG through Victory Gate Ventures, in which they have a stake of 70% and 30% respectively. Ma first invested in ICG in late 2014, when he bought over shares from the former chairman.
Prior to ICG, Ma and Zhang were involved in the cement business in China, where they came from. Since 2010, Ma has been a non-executive director of Hong Kong-listed West China Cement, whose production base is in China’s Shaanxi province. The chairman of WCC is Zhang’s father, Zhang Jimin.
ICG has already identified and started moving into other developing markets in Central Asia and even Africa. “It needs to be in the initial early stages of development, then you can command a higher price when you sell your products,” says Ma, elaborating on how he decides where to either buy plants or build new ones.
However, not all is rosy at Tajikistan, where ICG’s first plant is. According to the Economist Intelligence Unit, the former Soviet republic will see GDP growth of just 3.7% this year, with poverty, unemployment, austerity, power shortages and other factors weighing down on the broader economy.
Cement prices in Tajikistan now average US$70 per tonne after tax, having come down from their peak of US$110 to US$130 per tonne, owing partly to competition from Chinese state-owned enterprise Huaxin Cement, which also operates in the market. The 30% devaluation of Tajikistan’s currency, the somoni, since 2016 has hurt prices too.
Ma is optimistic that cement prices in Tajikistan have bottomed out and will only go up in the future. He is also positive that the plant will produce 1.35 million tonnes in FY2019 — 0.15 million tonnes more than the amount in FY2018, thereby generating higher profits, despite the external pressures.
ICG’s second plant, set up via a joint venture, is at Almaty, Kazakhstan, another former Soviet republic. Construction is now underway and, when ready in the third quarter of this year, it will have a production capacity of 1.2 million to 1.5 million tonnes. Kazakhstan’s economic performance is seen to be not too different from Tajikistan’s, with 4.1% real GDP growth recorded last year. However, the economy is expected to slow down slightly and flatten this year and next.
On March 11, ICG announced the acquisition of an almost 70% stake in another cement plant in Namibia, Africa from a privately held German cement producer called Schwenk Zement. ICG will be paying a total of US$104.4 million ($141.2 million), which consists of US$19.3 million for the shares in the cement plant and US$85.1 million for loans extended by Schwenk to the plant.
Schwenk also owns the privately held Energy For Future. EFF, also based in Namibia, is in the business of finding solutions to alternative energy sources. ICG, as part of the deal, is buying EFF too. It plans to fund the acquisition with either third-party financing or borrowings. Ma explains that he sometimes chooses to acquire a stake in an existing plant instead of building one from scratch, as an operational plant can reduce project risks.
When all three plants are up and running, they will have a total annual production capacity of 3.4 million tonnes. Ma has bigger plans, though; he wants to eventually expand into markets such as Indonesia and the Philippines, where demand for cement is healthy and prices are about US$100 per tonne — higher than what comparable output in Tajikistan can fetch.
Year to date, ICG shares have gained 45% to close at 2.9 cents on April 17, giving the company a market capitalisation of $164.3 million.
This story appears in The Edge Singapore (Issue 878, week of Apr 22) which is on sale now. Subscribe here
