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Nikkei Markets

YTL to buy Malaysia's biggest cement producer

$390m deal to give Southeast Asian conglomerate 70% market share

The latest data suggests economic expansion pace between April and June would be stable although threats to growth lingered over the remaining quarters due to trade tensions between U.S. and China.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysian utilities-to-hotel conglomerate YTL Corporation said Thursday it plans to acquire a controlling stake in cement producer Lafarge Malaysia for 1.63 billion ringgit ($393.87 million).

If the proposed purchase goes through, YTL will gain control of the Malaysia's biggest cement company that currently commands 40% market share in the country. YTL's own cement unit currently has about 30% market share in terms of capacity in Southeast Asia's third-largest economy.

"The proposed acquisition represents an opportunity for YTL and its subsidiaries to pursue its expansion strategy," the company said. "LMB is a strategic fit to the YTL's cement business and is expected to complement the YTL's existing core business activities."

"The board has taken a long-term view on the prospects as it considers LMB to be a strategic fit to the YTL's ongoing cement and aggregate and concrete businesses," YTL added.

The deal comes at a time when producers in Malaysia are grappling with intense competition in a market burdened with overcapacity amid sluggish demand. The property sector, which typically accounts for one-third of the cement demand, is also grappling with thousands of unsold homes across the country.

Last week, Finance Minister Lim Guan Eng said unsold properties rose 30.6% to 32,313 units amounting to 19.86 billion ringgit ($4.8 billion) in 2018, reflecting supply overhang.

On the other hand, the Malaysian government has scrapped several infrastructure projects doubting their economic gains, has stalled few and is re-negotiating some of the previously-awarded contracts to hammer down costs of some projects. These have further hurt demand for construction materials such as cement.

Analysts said the proposed acquisition by YTL will help support the cement industry in the longer-term.

"Eventually, this will be positive for the industry," said AllianceDBS Research Analyst Abdul Azim Muhthar. "There could be lesser pricing pressure for

players and this could improve bottom line of most players over the longer term."

If the deal for a 51% stake in Lafarge goes through, YTL, as mandated by the Malaysian takeover rules, will also extend the offer to buy the remaining shares it already doesn't own at 3.75 ringgit per unit. If successful, the deal will grant access to Lafarge's assets that include three cement plants and two aggregate quarries.

"The proposed acquisition is expected to deliver synergies including operational efficiencies in logistics, distribution and procurement, as well as cost synergies realised from economies of scale, the reduction or elimination of duplicated functions and the consolidation of corporate overheads," YTL said.

For Lafarge, the takeover comes after net loss widened to more than 319 million ringgit last year. Revenue slumped nearly 6% in 2018, the third consecutive year of decline.

Swiss building materials giant LafargeHolcim, which controls Lafarge Malaysia, has been looking to shed some of its businesses in Southeast Asia due to weak performance in the region, according to media reports.

Shares of YTL Corporation rose 4.4% to 1.18 ringgit on Thursday, while Lafarge Malaysia surged close to 13% to 3.72 ringgit on the Malaysian stock exchange. The benchmark FTSE Bursa Malaysia meanwhile ended 0.6% lower.

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