Colombia’s largest cement maker, Cementos Argos SA, plans to invest US$466m this year, almost doubling the US$258m spent last year, in expanding its output capacity in Colombia and parts of the US, where the company expects rising demand.
Cementos Argos will invest US$300m this year in a new cement line in Cartagena Colombio (pictured on CemNet home page) that will be able to produce 1.8Mta of cement. The project includes the construction of a port and a kiln, and is expected to start operating in the first quarter of 2009, Alberto Velez, the company’s chief executive, told Dow Jones Newswires in a recent interview.
"We are that aggressive because we are seeing that markets in Colombia, in the part of the US where we operate, and in the Caribbean will keep on growing. That is for sure," Velez said.
The construction industry is rising at a fast pace in Colombia. Argos’ sales of cement in Colombia grew 18% in 2007 to 496,000t, while sales of concrete rose 19% to 124,000m3.
The company’s sales of concrete in the U.S. rose 13% to 429,000m3 in 2007 from the previous year, Velez said.
Argos operates in Georgia, North Carolina and Texas, where it bought cement companies and ready-mixed concrete suppliers in the past years.
Even though the US housing market is suffering a general downturn related to the crisis of securities backed by subprime mortgages, Velez said in some parts of the US, such as states in which it is present, construction is still rising.
"We are not suffering from the recession in the U.S. because states like Texas have a high demand for cement and construction is growing," he said.
The largest cement maker in Colombia and the fifth-largest in Latin America will invest $21m in the ports it operates in Savannah, Ga., and Wilmington, N.C.
Additionally, Cementos Argos will spend $145m in its existing plants in Colombia to increase capacity, on transportation infrastructure and to reduce pollution.
Cesar Tovar, an analyst with the local unit of Stanford Group, agrees with Argos’ Velez.
"Even though the construction industry in Colombia is expected to grow at a slower pace than last year, Stanford Group believes the infrastructure sector will keep rising, propelled by construction of urban public transportation projects such as Transmilenio and other infrastructure projects. The expansion of the Panama canal may demand cement from Argos," Tovar said.
As a result, Tovar expects the price of Cementos Argos’ shares to rise to between COP9,500 and COP9,700 at the end of the year, from a COP7,000 closing price on Tuesday.
The company will finance the investment with a $200 million bond sale in the international markets, Velez said.
"This issuance could be either in pesos or in dollars depending on market condition. The date hasn’t yet been defined as we are waiting for interest rates to be attractive to us," Velez added, without giving further details.
Citibank and HSBC will handle the bond sale.
In December 2007, Argos borrowed $159 million from Citibank International PLC, a unit of Citigroup Inc. (C), and from the Danish government’s export agency. The cement company also plans to raise money from multilateral lenders such as the Andean Development Corp., Velez said.
The company will also use its own cash flow to finance the expansion plan, Velez said.
Argos booked a consolidated net profit of COP212 billion, 39% higher than in the previous year, the Medellin-based company said last month in a filing to the securities regulator.
Velez also said the company doesn’t rule out more acquisition opportunities.
"Yes, we plan to keep buying companies because it’s congruent with our growth strategy. As long as there are opportunities in the U.S., the Caribbean or in Latin America, we will look at them," he concluded.
In 2005 and 2006, Argos bought three concrete companies in the US for a little less than $700m.
Argos and its subsidiaries have plants in Panama, Haiti, Venezuela and the Dominican Republic. Inversiones Argos SA, a holding company belonging to Colombia’s largest conglomerate, Grupo Empresarial Antioqueno, controls Cemento Argos.