Lafarge to double spending in China

Lafarge to double spending in China
Published: 12 August 2005

Lafarge, the world’s biggest cement producer, is planning to double its investments in China to about US$800m over the "next couple of years", reflecting its determination to participate in forthcoming privatisations and infrastructure projects.  The company, which yesterday announced a joint venture deal with Shui On Construction and Materials (Socam), its Hong Kong-listed rival, is hoping to increase its share of China’s fragmented cement market, which has been hit by government-led attempts to cool the booming property sector.  

Bernard Kasriel, Lafarge’s chief executive, said the US$650m joint venture would pool the companies’ existing cement operations, concentrated in the country’s south-west. He insisted the business would be technically superior to the "outdated" production facilities that account for 70 per cent of China’s cement production.   "If they (the inefficient producers) had to pay the full price for fuel and electricity, most of them would not be able to compete," he told the FT, pointing to an expected rise in input costs from artificially low levels.  

The joint venture deal, first reported by the Financial Times on Thursday, was on the brink of collapse only hours before its announcement in Hong Kong. The companies would not be drawn on the details of the disagreement. Socam was advised by JPMorgan, while Lafarge said it did not use outside advisers.  

The joint venture partners are planning to invest a further US$120m over the next 17 months, as part of existing spending plans to upgrade facilities. Fresh investments by the partners would be in proportion to their holdings in the joint venture.  

Mr Lo, a Hong Kong property tycoon, said the joint venture was close to acquiring cement operations owned by the government of China’s Yunnan province. The deal would lift the company’s production capacity to 17.4Mta.