PE firms cement purchase of Lafarge Korea unit

Glenwood and Baring Private Equity Asia are paying $478 million for the business, the latest private equity foray into the country's distressed cement industry.

LafargeHolcim has agreed to sell its South Korean unit Lafarge Halla to Glenwood and Baring Private Equity Asia in a deal worth W560 billion ($478.48 million), the latest private equity foray into the country’s cement industry.

The Swiss building materials company confirmed the divestment in its annual report, which was released on Thursday. LafargeHolcim said it expects to close the sale of Lafarge Halla, Korea’s fifth-largest cement producer, in the second quarter of 2016, subject to final approvals.

The sale follows several other ownership changes among Korean cement companies, which look set to herald a round of consolidation within the fragmented industry. Cement companies in Korea have long struggled with moribund market conditions and several ended up with banks as major shareholders after they failed to repay their debts. But that has been changing as private equity companies buy these distressed companies from creditors.

In August 2015 Sampyo Cement and KDB Private Equity bought a 55% stake in Tongyang Cement & Energy, Korea’s fourth-largest cement producer, for W290 billion. The company had been in receivership since December 2013.

Then in December, Korean private equity firm Hahn & Co bought 46.14% of Ssangyong Cement Industrial, the country’s largest – and also bankrupt - cement manufacturer, for around $683 million. It bought the shares from Ssangyong’s bank creditors, led by Korea Development Bank.

Hahn previously acquired Daehan Cement in a bankruptcy court-overseen process in 2012.

Hyundai Cement is considered to be the next likely company on the sales block as it fell into receivership in 2010 after also being unable to repay its debts. In 2014 Hana Bank, KDB, Korea Exchange Bank, and Woori Investment & Securities took major shares in the business.

Korea’s cement industry has recently been hit by allegations of price-fixing too. In January, the country’s Fair Trade Commission reportedly fined six cement manufacturers W199.4 billion ($167.7 million) for fixing the price of cement, which rose by 43% to W66,000 per tonne in April, 2012 from W46,000 per tonne in March, 2011. The companies fined were Ssangyong, Tongyang Cement & Energy, Hanil Cement, Sungshin Cement, Hyundai Cement, and Asia Cement.

The combination of distressed sales and scandal has led the private equity acquirers to bank on rapid exits by bringing firms together. “The companies have a strategy potentially to consolidate in the industry,” said a financial expert familiar with LafargeHolcim’s asset sale. “Korea’s cement market is much more fragmented than we see in Europe.”

Cementing relations

This will not be the first time Baring Private Equity Asia has operated in conjunction with Lafarge.

The Hong Kong-based private equity company bought a 14% stake in Lafarge’s Indian operation in 2013 for $225 million. It subsequently exited the stake by selling it to Lafarge for around $253.15 million in June 2015, just before the Swiss company merged with Holcim.

Glenwood PE is less widely known than its deal partner. The South Korean company is led by Lee Sang-ho, and has to date been best known for combining with NH Private Equity Fund in 2014 to buy Tongyang Magic, a water purifier company.

A senior executive at Baring Private Equity Asia did not respond to emailed requests for comment about the acquisition. Glenwood PE could not be reached for comment.

The transaction took into account the recent other cement company sales to other companies when valuation was considered, the expert told FinanceAsia. Lafarge Halla is a smaller company than Ssangyong or Tongyang but it is also almost completely debt free, he added.

LafargeHolcim’s decision to sell its Korean unit is part of a broader group strategy to divest CHF3.5 billion of assets. In its annual report, in which it reported a fourth-quarter loss of CHF2.86 billion, the company said it had so far reached about one-third of this eventual goal.

The company’s 2015 annual financial results announcement marked the first set of annual results since the two European building materials companies merged in a $46.46 billion deal last year.

Barclays is the financial adviser for LafargeHolcim on the sale, while Daiwa is believed to be advising Glenwood. 

¬ Haymarket Media Limited. All rights reserved.
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