Ohorongo Cement attracts another Chinese buyer

NGINOMENWA ERASTUS, CHARMAINE NGATJIHEUE and LAZARUS AMUKESHEAPPROXIMATELY six months after Chinese-linked International Cement Group Limited’s attempt to buy Ohorongo Cement’s holding company was derailed, another Chinese company has surfaced seeking to buy the same company for N$1,5 billion in cash.

The new company, West China Cement, announced last Friday that they have entered into a sale and purchase agreement with Schwenk Zement, in which Schwenk will sell their entire shareholding to the Chinese entity.

Schwenk owns 69,83% of Ohorongo Cement, which operates a plant near Otavi in northern Namibia. Other shareholders include Industrial Development Corporation of South Africa (14%), the Development Bank of Namibia (11%) and the Development Bank of Southern Africa (4%).

Schwenk Namibia is wholly owned by Schwenk Zement International, a family-owned German construction company.

The new buyers are, incidentally, from China, with West China’s headquarters located in Xi’an, the capital of Shaanxi province.

In an announcement made on Friday, West China’s board chairman, Zhang Jimin, confirmed that the sale and purchase agreement was entered into on 3 January this year.

“The Board is pleased to announce that after trading hours on 3 January 2020, the company and Schwenk Zement entered into the sale and purchase agreement,” said Jimin in a statement.

According to the agreement, West China will acquire all the shares of Schwenk Zement, as well as the shareholder loan they extended to Ohorongo Cement.

The share value of Schwenk Cement in Ohorongo Cement is valued at N$276 million, while the outstanding amount for the shareholder loan extended to Ohorongo Cement is at N$1,2 billion – bringing the total consideration to N$1,5 billion.

This sale, if approved, will put the Namibian cement sector in the hands of Chinese ownership, as its counterpart Cheetah Cement is majority owned by China’s Asia-Africa Business Management.

West China Cement have indicated that they will pay cash for the purchase, and have stipulated that the the success of the deal is on condition that Schwenk Zement’s disposal of its stake in Ohorongo Cement is approved by the Namibia Competition Commission (NaCC).

A second stipulation requires Ohorongo Cement to fully repay a loan granted by the First National Bank of Namibia and ensure that such loan is terminated accordingly.

West China Cement will go through with the takeover if the two conditions are satisfied, and they have given Ohorongo Cement and Schwenk Zement till 31 March this year to fulfil both terms.

This second attempt of Schwenk Zement to sell off their ownership in Ohorongo Cement flies in the face of their promise to sell Ohorongo shares to Namibians, as detailed on their website.

An offer of N$1,5 billion by Singapore Exchange (SGX) listed International Cement Group, who in 2019 sought to purchase Ohorongo Cement, was thwarted by the SGX, who cited inadequate pre-deal anti-money laundering measures. The purchase was classified as a very substantial acquisition (VSA) under Chapter 10 of the SGX listing manual, but failed to live up to the stringent requirements and was ultimately not approved.

According to the statement as of 30 June 2019, the unaudited total asset value of Schwenk Namibia/Ohorongo Cement amounted to approximately N$2,5 billion, and the book value of the shareholder’s loan amounted to approximately N$1,19 billion. The June 2019 consolidated net profit (unaudited) before tax stood at N$20,11 million.

West China Cement attributed their interest in Ohorongo Cement to the prospect of increased demand in the Namibian cement industry and the fact that the company only has one competitor, namely Cheetah Cement.

“In view of the existing supply and demand situation of cement in Namibia and the market demand for cement driven by the aforementioned infrastructure constructions to be developed vigorously in the future,” West China said.

It added that the planned investment in, and the acquisition of, the Namibian cement production line will improve the group’s profitability in the cement business and prove to be a strategic step in entering the international cement market.

In a brief interview with yesterday, Ohorongo Cement’s spokesperson, Frank­leen Alberts, confirmed the deal, reiterating that Schwenk Zement International and West China Cement International entered into a sale and purchase agreement in respect of Schwenk Namibia shares.

“The transaction involves the sale of Schwenk Namibia shares, by Schwenk Zement International to West China International,” she said.

Development Bank of Namibia’s chief executive officer, Martin Inkumbi, stated that the transaction is between Schwenk and West China, and does not really concern them as minority shareholders.

“We are aware of this transaction between the buyer and the seller, but it does not affect us. Our shares remain as is,” he said.

The acquisition is still to be approved by the NaCC and at the time of going to print, the commission had not responded to the questions sent to them.

With condition given to Schwenk Zement the commission has to pronounce itself within the next two months for the deal to go through.

In the event that the closing conditions are not satisfied on or before 31 March 2020, the sale and purchase agreement shall be automatically terminated and none of the parties shall have further obligations under the agreement.

Calculations by show that should the sale be concluded, the maximum possible tax on the sale of the shareholding would be around N$400 million.

Email: bottomline@namibian.com.na

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