Shui On Construction and Materials is in talks to buy stakes in two state-owned steel and cement companies in Guizhou province.
The company, which already operates eight Guizhou cement plants with an annual capacity of three million tonnes, already agreed to buy 80 per cent of a state-owned cement outfit in Yunnan for 409 million yuan (HK$385.4 million) earlier this week.
The move comes as the central government seeks to curb capacity in these industries by limiting access to bank credit and raising the rates these energy-intensive industries pay for power. Yuan Zhouxiang, National Development and Reform Commission deputy director of Guizhou, said Shui On may invest in Shuicheng Cement, with annual capacity of 600,000 tonnes per year, and Shuicheng Steel company, with capacity of 800,000 tonnes a year, in Liupanshui city.
The two firms Shui On are buying are both small by industry standards, analysts said, and therefore vulnerable to the government’s crackdown. The cement industry has already seen a massive shake-out as a result in part of the government crackdown. "The number of cement companies has been reduced to 4,000, from 10,000 five to six years ago,’’ Kim Eng Securites analyst Edward Fung said. All this makes for opportunity for bigger, well-capitalised firms. "It’s a very good time to buy,’’ Peng said, since some small operators cannot obtain bank financing and are willing to cut the selling price they are asking for their assets.