- Company currently has 21.17% holding in West China Cement
- Transaction comes amid overcapacity in the cement industry
Anhui Conch Cement Co. agreed to more than double its stake in smaller rival West China Cement Ltd. for HK$4.59 billion ($592 million) amid consolidation in an industry suffering from overcapacity.
Conch International Holdings (HK) Ltd., a wholly owned unit of Anhui Conch, plans to increase its holding in Shaanxi-based West China to 51.57 percent from the current 21.17 percent, the companies said in a filing to the Hong Kong exchange Friday. If the transaction goes through, Anhui Conch will have to make a mandatory cash offer for all shares of West China it doesn’t own, the filing showed.
China’s cement producers, already hurting from falling property construction, will face new challenges under the country’s next Five-Year development plan starting 2016. Demand probably will be constrained by slower economic growth and a broader shift to a consumption model from one that’s investment-driven, Bloomberg Intelligence analyst Michelle Leung wrote in a note Nov 6.
Shares of West China will resume trading Monday after being suspended Nov. 19, according to the filing.
West China agreed to buy four units of Anhui Conch and will issue shares in itself to pay for the purchase, the companies said in the filing. West China will issue 3.403 billion shares at HK$1.35 each -- a 6.9 percent discount to its last traded price of HK$1.45 -- for a total of HK$4.59 billion. The issuance will raise Anhui Conch’s stake in West China.
Should Anhui Conch be required to make an offer for the rest of West China, it will pay HK$1.69 in cash for each share, according to the filing. That’s the same as the subscription price of shares West China last sold to Anhui Conch in June.
Bloomberg Intelligence identified West China as one of 17 possible merger and acquisition targets among China cement producers, according to another note from Leung. The most likely candidates show losses and carry substantial debt, she wrote.
New-home building starts in China, a leading indicator of real estate construction, fell 24 percent in October from a year earlier, according to the nation’s statistics bureau.
— With assistance by Clement Tan, and Tian Chen