German cement manufacturing specialist KHD has announced a significant strategic partnership with China-based CATIC Beijing Ltd a subsidiary of China’s state-owned CATIC International Holdings Ltd, to capitalize on the rapidly expanding international market for cement plant construction.
KHDs Director Jouni Salo said that KHD and CATIC combined will be able to bid on a wider range of projects, including large turnkey projects, and penetrate the most important cement markets including China itself, the largest single market in the world, and other countries and regions as KHD and CATIC see fit.
The strategy behind the exclusive partnership includes:
• Leverage CATIC resources within China to win project awards;
• Leverage the proven technological expertise of KHD;
• Combine CATIC representation in more than 30 countries and 56 overseas; subsidiaries with the traditional strength of KHD in India, EMEA, the Americas and countries of the former Soviet Union.
The deal includes investment in KHD by a CATIC controlled Hong Kong company (“MGI”) in the range between Euro 37-45m, giving MGI 20% of the share capital in KHD at Euro 4.53 per share. The method of purchase entailing subscription from existing and unutilized subscription rights, with all shares purchased by MGI locked in, and not be available on the market, for a 29 month period.
MGI and CATIC Group will also be prohibited from buying shares in excess of 29 per cent of KHD for 12 months.
CATIC to have representation on the Supervisory Board and contribute to KHD operations with a management representative. KHD to co-invest with CATIC in China’s design and manufacturing resources for the Chinese and export markets.
As Juoni Salo commented: “This is a defining moment for both companies, as we partner to unite KHDs century and a half of experience and its unmatched library of intellectual property with the extraordinary reach and power of CATIC.
Comment: Austrian financial analyst Dr Clemens Scholl notes: “KHD will pursue a rights offering in January where existing shareholders can subscribe for one new share at a price of Euro 4.53 for every two KHD shares held. CATIC will subscribe the shares which are not subscribed by existing shareholders.
“Since the current share price of KHD is around Euro 7.00, every shareholder certainly would want to exercise their subscription right. However, this way CATIC could never achieve its 20% stake in KHD – Dr Scholl believes. “About 60% of KHD shareholders will have to abstain from exercising their rights in order for CATIC to be able to gain a 20% stake in KHD. The rights offering has thus be structured in a way that only shareholders with residence in Germany or Luxemburg will be able to subscribe for new shares.
“This share offering in which US shareholders will not be able to participate will dilute existing non-German shareholders and deprive them of their subscription rights, which are worth around US$1.60 per KHD share – an amount they will not be compensated for.
“On the other hand – notes Dr Scholl – KHD will gain access to the Chinese market for cement plants, which amounts to a very large share of the global market. Maybe this will be a small price to pay for becoming a true global leader in cement plant engineering.”