CP Cimento mulls partial sale

CP Cimento mulls partial sale
Published: 17 November 2005

Brazil’s seventh largest cement producer, CP Cimento has hired investment bank Goldman Sachs to find a buyer for part of its business, newspaper Valor Econômico reported. The reason behind the decision is due to pressing short-term debt, which at June this year reached 500m reais (US$228m). The company is believed to be worth US$500-600m, the paper said.

In October ratings agency Standard & Poor’s (S&P) downgraded its rating on CP Cimento’s corporate credit to brBB+ from brBBB, with a negative outlook. The move reflected CP Cimento’s reduced profitability and cash flow generation in the last few quarters, as well as a moderate recovery perspective in the medium term and increasing pressure from maturing loans in the short term. The company’s Ebitda margin decreased to 17.8 per cent in the first half of this year, compared to an average of 30 per cent in the last three years, S&P said.

Rio-based CP Cimento is a non-operational holding company created in 1999 to control and manage two cement producers: Cimento Tupi and Companhia de Cimento Ribeirão Grande. Its 2004 cement production reached 1.73Mt, representing 5.3 per cent of the national market and about 10 per cent of Brazil’s southeastern market.  As the two subsidiaries operate independently, CP may opt to offer Ribeirão Grande for sale, according to analysts. However, with more than a 40 per cent market share, Brazilian cement leader Votorantim Cimentos has been ruled out as a possible buyer due to the country’s antitrust rules.

Another local cement company - Camargo Corrêa, seemingly still hungry after its recent US$1bn purchase of Argentine firm Loma Negra - is included on the shortlist of companies that may be considering to buy the CP stake and has expressed interest in expanding locally. The other companies mentioned by experts are the world’s three largest cement companies: Lafarge, Holcim and Cemex.

The local unit of Lafarge - Brazil’s sixth largest cement producer - seems to top the list as it is already a minority partner in Tupi since 1998. Holcim Brasil is the country’s fourth largest producer and may also be considering to buy, while Mexican company Cemex - which does not exist in Brazil - may see this as an opportunity to penetrate the (deep) South American market.