China Gets Rare Corporate Clash as Buyers Circle Shanshui Cement

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China is experiencing a rare tussle for corporate control as shareholders of a cement maker clash amid mounting industry consolidation.

China Shanshui Cement Group Ltd. held an extraordinary general meeting Wednesday at which the largest shareholder’s proposal to oust its leader was rejected. Tianrui International Holding Co., which controls 28 percent and had made the shakeup bid, squared off against China National Building Material Co. and Asia Cement Corp. The two own 38 percent and are mulling a cash offer even as Tianrui says it wouldn’t sell.

The clash shows how China is opening up to more fights for control as President Xi Jinping encourages culling of weaker firms in industries grappling with overcapacity. Chinese cement prices have slid to a six-year low as the economy cools. Producers face a hangover after the global financial crisis sparked a building push in which China produced more cement in just three years than the U.S. used in the 20th century.

“It is a unique case of multiple parties fighting for control of a company in China,” said Christopher Lee, Hong Kong-based managing director of Greater China corporate ratings at Standard & Poor’s. “The cement industry is suffering from overcapacity so it makes sense for consolidation in order to gain higher pricing power.”

Cement’s Slide

The average price of cement in China has dropped to 250 yuan ($40) per ton from as high as about 360 yuan at the end of 2013, according to Bloomberg Intelligence. China made 6.7 gigatons of the material in the three years through 2013, compared with 4.5 gigatons used in the U.S. in all of last century, according to data from the U.S. Geological Survey.

Shanshui is China’s seventh-biggest cement maker in terms of capacity and the largest in the northern provinces of Shandong and Liaoning, according to BI.

“One reason competition for Shanshui is intense is that existing shareholders such as CNBM and Tianrui have overlapping exposure in Shandong and Liaoning provinces, so controlling Shanshui would give them higher pricing power,” said Michelle Leung, an analyst at BI.

Shanshui said 99.9 percent of the shareholders rejected the Tianrui proposal to replace Chairman Zhang Bin and appoint six other board members, according to a company statement. At the same time, Tianrui wouldn’t sell now even if CNBM and Asia Cement did make an offer, an investor relations official at Tianrui said at the shareholder meeting Wednesday.

Speaking at the venue, Shanshui Chairman Zhang said CNMB and Asia Cement trust Shanshui’s management. “They were brave enough to say no to Tianrui’s moves.”

Bonds Rally

Shanshui’s $500 million of 7.5 percent bonds due 2020 have rallied 8.7 cents in July to 93.6 cents on speculation any stake increase by state-owned CNBM would support the notes.

Large cement makers will continue consolidating, according to Ross Lee, credit desk analyst of Bank of China Hong Kong Ltd. The trend was flagged by Anhui Conch Cement Co.’s acquisition of a stake in West China Cement Ltd. in June.

While President Xi’s “one belt, one road” project to develop ties along the land and maritime routes of the old Silk Road should buoy cement demand, the industry will still face “severe overcapacity, intense domestic competition and continued weak prices,” Lee said.