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DG Khan Cement expresses interest in Lafarge Pakistan stake

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World Cement,

DG Khan Cement Company of Pakistan has expressed a public interest in the acquisition of 100% of Lafarge S.A.’s stake in Lafarge Pakistan Cement Limited (LPCL). Lafarge currently holds a 73% stake in the company, which has a 2.5 million tpa plant in Chakwal, Punjab. Vision Holdings Middle East, owner of a 47% stake in Pioneer Cement, has also shown interest in the Lafarge shares.

Necessary divestment?

Holcim does not have a plant in Pakistan, so Lafarge’s sale of its Pakistani interests is not one of the necessary divestments mentioned in the initial statement regarding the merger. However, the announcement that Sofima SAS (a fully-held direct subsidiary of Lafarge SA) is divesting 100% of its shares did follow news of the merger last month. Ahsan Mehanti, an analyst at Arif Habib Corporation, told local press: ‘Lafarge SA does not want to stay in Pakistan and it is its own decision’.

DG Khan has informed all three stock exchanges and the Securities and Exchange Commission of Pakistan that it has the approval of its board of directors to proceed with due diligence for the acquisition.

Cement capacity

DG Khan Cement also has a plant in Chakwal running at 98% capacity, according to local reports. Its current capacity of 4.02 million t makes it Pakistan’s third largest cement company. With the acquisition of LPCL, it would move to second largest, ahead of Bestway Cement. The company also announced plans last year to set up a new complete cement plant in Hub, Balochistan, with a capacity of 2.6 million t, though it is not yet clear whether this would go ahead if the LPCL acquisition was successful.

Expansion and competition

The All Pakistan Cement Manufacturers Association (APCMA) has been going through a rocky period in recent times, as news of expansion plans by the larger players stir concerns from the smaller companies over cement prices as companies vie for market share. BMA Capital Management issued a report in September last year warning, ‘While we maintain our projections of a healthy demand growth in the next five years (6 – 8% per annum), we would highlight that every player competing for a greater share of this expanding pie may create fissures within APCMA for the time being’. Sherman Securities also warned that uncertainty over expansion plans might result in the industry underperforming.

DG Khan reported a 4% decline in earnings for the first nine months of the current financial year, attributing the loss to higher energy and production costs.

Edited from various sources by

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