InterCement continues to downsize as it wrestles with debt

InterCement continues to downsize as it wrestles with debt
25 August 2023

InterCement Participacoes SA (ICP), based in Sao Paulo, Brazil, continues to off-load assets as it attempts to manage a debt pile accumulated over a decade ago when the company acquired Cimpor, in its former guise as Camargo Correa.

The multinational cement company, still controls 33.6Mta capacity across markets in Argentina, Uruguay, Brazil, South Africa and Egypt, although agreements have been made for the sale of assets in Africa, following the sale of Mozambique.

In recent years, the multinational cement company has struggled to remain profitable and in March 2023 Fitch Ratings downgraded it to CCC. The reasons given were the high refinancing risks for InterCement and limited financing alternatives despite improving cash flow and asset divestitures. Sizeable debt maturities in May and July 2024 will not be helped by the negative headwinds of tight credit market conditions and increasing interest rates. 

ICP will be working to extend borrowings with creditors, mainly for its African subsidiaries. The company has already announced the sale of its assets of Amreyah Cement in Egypt to an unknown buyer in January 2023, the proceeds of which will help the company refinance its debt. In June the company reached an agreement to sell its Mozambique business of Huaxin Cement for an enterprise value of US$265m, according to Fitch Ratings.

Reporting on the 2Q23 results, InterCement mentioned that it tried to increase cement prices in July, but it is revisiting the topic since peers did not increase theirs. Cement and clinker volumes in the 2Q23 were at 4.4Mt, impacted by lower demand in South America and partially offset by Africa. Inflationary pressures such as the soaring prices of oil and overall energy costs have challenged InterCement’s EBITDA during the last 12 months.

The company will receive in just over US$200 in net worth for transactions in the assets of Egypt, South Africa and Mozambique. However, the company needs to refinance US$548m in senior notes by May 2024. The funds were previously raised to acquire Portugal’s Cimpor acquisition through Camargo Corrêa in 2010.

Brazil for sale?
ICP has not yet decided to sell assets in the its two major markets of Brazil and Argentina. There is still no consensus on the issue, according to analysts. Industry sources say that there may be several competitors in Brazil with the potential to take individual assets from the local operation, InterCement Brazil, which has 15 plants, a regional slice, or even the whole company. InterCement Brasil has produced around 8.7Mt of cement, with an effective production capacity of 12.2Mta as 5Mt are “hibernated” as a result of the shutdown of six plants, two integrated and four mills, according to local reports. According to ICP information material, the plants, and mills of João Pessoa (Paraíba state), Suape (Pernambuco state), Brumado (Bahia state), Pedro Leopoldo (Minas Gerais state) and Cubatão and Jacareí (São Paulo state) are mothballed.

The Buzzi/Brennand and Vicat/Ciplan groups are said to be interested in evaluating ICP’s initiative to put assets up for sale. As the market leader, Votorantim Cimentos is very targeted by CADE, the Brazilian antitrust agency, so Votorantim could only look at assets that do not overlap with its business up to around 35 per cent.

There is currently no informaiton on the possible sale of Loma Negra, ICP's Argentinian operations, which reported net revenues of ARS50.9m (US$206m) in the 2Q23. EBITDA totalled ARS11.7bn, down 26.1 per cent while the company’s net profit reached a modest ARS2.4bn.

Going forward, ICP mentioned the possibility of an IPO in 2024 could be an option for the company, but that no decision has been made so far.

Published under Cement News