On June 12, Huaxin Cement announced that its subsidiary Huaxin (Hainan) Investment Co., Ltd. intends to acquire 75% of Lahao Zambia and 100% of Malawi Cement. This is an important step for Huaxin Cement to expand in Africa in its internationalization strategy.
The two companies are expected to bring an annual profit
of 20 million US dollars to Huaxin Cement. Lahao Zambia is a company established and listed in Zambia, Africa. Its main business is the manufacture and sale of cement and aggregates. It has two cement plants with a total capacity of 1.5 million tons and an aggregate plant with a capacity of 600,000 tons. Lahau Malawi Cement is a grinding station with a capacity of 250,000 tons located in Blantyre, Malawi, Africa. The financial information of the two companies is as follows:
Table 1: Financial data of the two companies to be acquired in 2020 (USD 10,000)
Data source: Cement Big Data Research Institute
The acquisition is subject to the approval of the Competition and Consumer Protection Commission, the Ministry of Mines and the Securities and Exchange Commission of Zambia. The Development and Reform Commission of Hainan Province, the Department of Commerce and the Hainan Branch of the State Administration of Foreign Exchange also need to be filed or approved.
After this acquisition, Huaxin Cement will increase its cement production capacity by 1.75 million tons in two African countries, which will help Huaxin Cement expand its strategic layout in Africa and contribute to the steady implementation of its overseas strategy. According to the financial data, the profitability of Lahao Zambia is relatively good, with a net interest rate of about 21%. Although Malawi Cement is losing money, there is more room to improve its profitability in the future. Usually, after the acquisition is completed, the acquirer will make certain technical transformation to the acquired production line to improve production efficiency, and at the same time, use its own management and talent advantages in the cement industry to reduce costs, improve the profitability of the acquired assets, and achieve a satisfactory rate of return. After the transformation, the two companies are expected to bring annual profits of nearly 20 million US dollars to Huaxin Cement in the future. At the same time, Huaxin Cement can also use the limestone resources of the acquisition enterprises to further expand cement production capacity and expand the development space in African countries.
Following the national policy, the overseas layout exceeds 10 million tons
. The author noticed that the main body of the acquisition is Huaxin (Hainan) Investment Co., Ltd. After the promulgation of the General Plan for the Construction of Hainan free trade port on June 1 last year, various preferential policies of the free trade port gradually landed, and Hainan's foreign investment set off a boom. According to media reports, from January to May this year, enterprises' overseas investment showed a blowout growth. "The growth rate of overseas investment is warming up, which is closely related to the intensive introduction of supporting policies by Hainan Free Trade Port and the further release of policy dividends." The relevant person in charge of the Provincial Development and Reform Commission introduced that in the project forum with enterprises, enterprises expressed great concern about two policies: one is to encourage industrial enterprises to reduce the tax rate by 15%; the other is to exempt the income from new overseas direct investment before 2025 from enterprise income tax. Last July, Li Yeqing, president of Huaxin Cement, led a team to visit Hainan Free Trade Port, and in December, Huaxin (Hainan) Investment Co., Ltd. was established. Whether it is the internationalization strategy or the establishment of investment companies in Hainan Free Trade Zone, Huaxin Cement has always been highly sensitive to national policies.
After this acquisition, the total overseas production capacity of Huaxin Cement will reach 12.5 million tons.
Table 2: Overseas Layout
of Huaxin Cement Data Source: Cement Big Data Research Institute
Zambia has a good business environment, attracting many Chinese investors to enter
Zambia, which is located in the inland of central and southern Africa and has no access to the sea. It is adjacent to Congo, Mozambique, Tanzania and other countries, with a total population of 17.6 million as of 2018.
Figure 1: Huaxin Cement has been (planned to be) located in Tanzania, Zambia and Malawi
. Zambia is one of the African countries with a better investment and trade environment. Zambia ranks 85th in the World Bank's Doing Business 2020 Report, up two places from 2019. Despite being one of the least developed countries in the world, Zambia has established a relatively mature democratic system, a relatively sound legal system, political stability, overall stability of the social security situation, and no terrorist attacks or threats. The stable political situation and better business environment have attracted many Chinese investors to Zambia. By the end of 2018, nearly 600 Chinese-funded enterprises had been registered in the Business Counsellor's Office of the Chinese Embassy in Zambia, employing more than 50000 local employees. According to the statistics of the Ministry of Commerce of China, by the end of 2018, China's direct investment stock in Zambia was US $3 billion 270 million. Huaxin Cement will form a triangular pattern of Tanzania, Zambia and Malawi through acquisition in Africa. In addition to Huaxin Cement, the production line of China Building Materials Zambia Industrial Park with an annual output of 1 million tons of clinker cement has also been ignited and put into operation.
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