China Authorities Strive for Cement Consolidation

Published By : 06 May 2015 | Published By : QYRESEARCH

The attempts by the Chinese authorities to reduce the size of the cement industry in the country have trapped international bond investors right in the middle of it all. 

Last month, China Tianrui Group Cement raised its stake in China Shanshui Cement to 28.16 per cent, which was more than Zhang Caikui, the founder of Shashui. Fitch Ratings have called this move a change of control. 

China Tianrui Group also downgraded Shanshui to a BB- on the grounds of weak cement prices. This rating is three levels lower than the investment grade. With a change in control, the firm’s dollar bondholders will also be able to demand for immediate repayment.

Cement producers in the biggest economy in Asia are now under pressure to pull up their socks after Premier Li Keqiang stated in March that the key priority this year was to bring in to force new and revised laws on environment protection. 

The reliance of cement makers on coal power is the main reason behind the companies’ heavy pollution levels.

Shanshui Cement has decided to pick a strategy of selling minority stakes to different firms in order to raise money in a highly competitive environment. Last year, Shanshui Cement reported a profit of approximately one third of what it achieved in the year 2013. 

Kalai Pillay, senior director at Fitch Ratings based in Singapore, said on Wednesday that the motive behind the approach of Chinese authorities towards the cement sector was crystal clear – the authorities want consolidation.

Pillay added, “If we take the case of Tianrui’s part acquisition of Shanshui Cement, we do not know the reason or intention behind Tianrui’s acquisition and we also do not know the reaction of local lenders towards this change of control”. 
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