The world's largest cement producer, Lafarge, announced it has acquired a controlling stake of a State-owned cement producer, and analysts believe more M&As (mergers and acquisitions) are on the horizon in the currently fragmented industry.

In a statement passed to the Shenzhen Stock Exchange yesterday, Sichuan Shuangma Cement Co Ltd, a Shenzhen-listed company, said Lafarge China will acquire 100 per cent of its parent company, Shuangma Investment Group, for US$38 million.

Shuangma Investment Group, the largest cement producer in Sichuan Province, said Lafarge is buying the group from the Mianyang municipal government, which currently owns a 89.72 per cent stake, with the remaining stake belonging to the labour union.

Shuangma Investment Group holds a 66.5 per cent stake in Shenzhen-listed Sichuan Shuangma Cement Co Ltd.

This is the first time that a foreign-funded company has bought controlling stakes in a State-owned resource-related enterprise, though approval still needs to be granted by the related government departments.

The deal has been operated by Lafarge Shui On Cement, the joint venture between Lafarge and Shui On Construction and Materials Limited, created only three months ago. This joint venture is 55 per cent owned by Lafarge and 45 per cent owned by Shui On.

Taking into account the debts run up by Sichuan Shuangma and a short-term investment injection to improve existing facilities, the total investment for Lafarge Shui On Cement could amount to around US$160 million, according to a statement from Lafarge China.

The transaction is expected to increase the cement production capacity of Lafarge Shui On in China to 21 million tons, bolstering its position to No 1 in Southwest China, and one of the three largest cement producers in China.

Lafarge is also expanding production by increasing capacity at a Chongqing plant by 1 million tons and doubling its Dujiangyan cement plant to 2.8 million tons in 2006, according to Qiao Tianyun, a spokeswoman of Lafarge China.

It is a good time for M&As in China's cement industry, since it has been performing badly due to the government's macro management measures to bring down infrastructure construction and therefore the demand for cement, said Jiang Tao, an analyst from Shenyin Wanguo Securities.

Shuangma reported a loss last year.

But the Chinese market is still an attractive market, Jiang said.

Currently, China accounts for about 45 per cent of the world's cement consumption, with an estimated market of 900 million tons in 2004.

Jiang believed the increase in M&As and the involvement of foreign capital will transform the currently fragmented cement manufacturing industry in China.

Source: China Daily