The company is taking advantage of Beijing’s plan to invest and build infrastructure in less-developed western provinces. The central government has imposed limits on national cement production to curb oversupply since last year, but has allowed western regions to increase production, Zhang said.
"In the next 10 years, as part of the government’s western development plan, the company will step up its investment in upgrading infrastructure in the western region," he said. The firm’s cement will be used in various infrastructure projects in western provinces, including railways, roads, dams and housing.
The spending will be financed by the company’s internal funds. "We have prepared CNY2bn (US$304.5m) for this. Every year our cash flow is more than CNY1bn. We have sufficient cash," he added. West China Cement has ample funds after it raised HK$1.5bn by listing on the Hong Kong stock exchange and delisting from the London AIM exchange last year, he said.
All the company’s cement production and sales are in the northwestern province of Shaanxi, where it has a 20% market share. In the next six years, it will build cement plants in Xinjiang and Qinghai provinces.
Cement production in western parts of the country lags behind that in coastal provinces. Qinghai’s cement capacity is 15Mta, while Xinjiang’s is 20Mta. By comparison, Guangdong province’s annual production capacity is nearly 100Mta, according to Zhang.
Meanwhile, a JP Morgan report warned West China Cement was in breach of covenant on a CNY330m syndicated loan due to its aggressive expansion. The company exceeded its debt-to-asset ratio limit of 50% stipulated in the covenant and surpassed the required CNY200m limit in 2010, said the report. The cement firm has received a waiver from the covenant until 30 June. "The breach indicates the company’s aggressive expansion in the past," the report said. "The company has increased its capacity from 8.5Mt in 2009 by 34% to 11.4Mt in September 2010. Free cash flow has been negative as a result of expansion."
West China Cement’s net profit nearly tripled from CNY330.46m in 2009 to CNY933.27m in 2010.