South African cement company seeking growth in Ethiopia

  

South Africa’s Pretoria Portland Cement Company (PPC), has joined hands with South Africa’s Industrial Development Corporation (IDC), to acquire a 47% equity stake in Habesha Cement Share Company (HCSCo) of Ethiopia in a US$21m deal.

Paul Stuiver, the PPC CEO, was quoted as saying, “We are on record that our strategy is to grow our revenue earned outside of South Africa to 40%-50% during the next few years and that we have been working on various opportunities on the African continent. This is one of those opportunities and we look forward to a growing contribution and partnership with Habesha in the years ahead.”

PPC thus joins the likes of Dangote Cement of Nigeria and Athi River Mining of Kenya, which are companies with origins in sub-Saharan Africa that are seeking to capitalise on the fast growing cement consumption in the region.

PPC’s website states that its $12m cash investment secured 27% equity in HCSCo, while IDC’s $9m secured a 20% equity stake.

HCSCo has more than 16,000 local shareholders and is appropriately named Habesha, a proud Ethiopian term for the unity of its people. In addition to the injection from the IDC and PPC, the company secured $86m debt financing from the Development Bank of Ethiopia. The first phase of HCSCo’s plan is a $130m state of the art cement plant with an annual capacity of 1.4m tonnes per annum (mtpa) specifically for the Ethiopian market. The plant’s future development plan includes an option to double the capacity to 2.8 mtpa. The plant, which is currently in the early stages of construction, is located 35km north-west of Addis Ababa. Cement production is planned to commence during the first half of 2014.

During the initial construction phases, PPC will assist HCSCo by providing operational and technical expertise and with the training of plant personnel at its operations and in the PPC Academy in South Africa. PPC is the leading supplier of cement in Southern Africa with eight cement manufacturing facilities and three milling depots in South Africa, Botswana and Zimbabwe and has total cement capacity of 8m tonnes annually. PPC also produces aggregates, metallurgical-grade lime, burnt dolomite and limestone. In addition to serving its domestic markets, cement and lime are also exported to neighbouring countries in Southern Africa.

Ethiopia, on the other hand, is Africa’s second most populous nation with a population of around 85 million. It is one of the world’s oldest civilisations, but also among some of the world’s poorest countries. Per capita GDP currently stands at $354, but Ethiopia is among sub-Saharan Africa’s fastest growing countries having achieved 8.8% growth in 2011.

Ethiopia’s government has launched a 5-year (2010/15), Growth and Transformation Plan (GTP), which is geared towards fostering broad-based development in a sustainable manner. The plan seeks to double the GDP and the agricultural production and to increase electricity coverage from 41% to 100% and access to safe water from 68.5% to 98.5%.

Since 2003, the government has embarked on a housing reform programme – 11,000 apartments have been completed to date providing individual ownership of affordable quality housing.

We believe Ethiopia ticks all pre-requisites for an emerging cement market and PPC’s entrance is coming at the right time. Further, we note Dangote’s plans to enter the market with a 1.5 mtpa integrated plant, which we believe is a good indication on the future of the cement business in Ethiopia.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.




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