Home » Bamburi Cement Sells Uganda Subsidiary
Africa Economy News

Bamburi Cement Sells Uganda Subsidiary

Bamburi Cement Plc is selling off its stake in Ugandan subsidiary, Hima Cement Ltd, amid a challenging cement market across the East African region made worse by increasing competition and high production costs.

Bamburi, which indirectly owns 70 percent stake (1.33 million ordinary shares) in Hima Cement through its subsidiary Himcem Holdings Ltd, entered into an agreement to sell all the stock to a group of investors, including Sarrai Group Ltd and Rwimi Holdings Ltd.

The remaining 30 percent (572,400 million shares) will be acquired by Swiss firm Cementia Holding AG.

The transaction, which is valued at $120 million, is subject to satisfaction or waiver of certain conditions and approval from the shareholders.

“The proposed transaction is subject to satisfaction or waiver of certain conditions and subject to receipt of approval of shareholders of Bamburi… Until a further announcement is made, the shareholders and other investors of Bamburi are advised to exercise caution when dealing in Bamburi’s ordinary shares listed on the Nairobi Securities Exchange (NSE).”

The deal comes against a backdrop of shrinking revenues in Kenya and Uganda, which the firm attributes to a challenging operating environment that has slowed down the cement market demand, high costs of energy and increased raw material costs.

The dire situation has been compounded by the Kenya government’s decision vide the Finance Act 2023 to impose a 17.5 percent Export and Investment Promotion Levy on clinker — a key ingredient in cement manufacture — atop already high production costs.

Last year, turnover declined five percent to Ksh39.2 billion driven by decline in volumes in Kenya and Uganda.

Other reasons for the decline, as listed in the firm’s annual report were decrease in government infrastructure projects spend, suppressed consumer purchasing power, and stunted private sector credit growth. These were exacerbated by market contraction since May due to Kenya’s elections.

“This is primarily attributable to decline in the topline coupled with significant inflation of the fuel prices, logistics costs and imported clinker prices in Kenya and Uganda,” says Bamburi.

In Uganda, the cement market dropped by 21.6 percent in 2022 with the market seeing with aggressive pricing by the players. Current demand is driven by foreign direct investment into the oil and gas sector as well as domestic investment in the housing sector.

Tanzania is “an attractive market mainly due to growth in infrastructure and housing development, numerous government-sponsored railways, airport and road projects,” according to Dangote.

The East African cement market is projected to remain highly competitive with the entrant of new players. Significantly, Dangote Cement, Africa’s largest cement producer with a presence across 10 African countries, is flexing muscles to expand its footprint in the continent riding on the African Continental Free Trade Area (AfCFTA), which hopes to unlock a $3.4 trillion market with a population of about 1.3 billion people.

The Nigerian cement maker, which has production capacity of 51.6 million tonnes per annum already has operations in Tanzania where it controls about 23 percent market share, Ethiopia (42 percent market share ) and Congo (62 percent market share),
Other countries are South Africa, Cameroon, Sierra Leone, Zambia, Senegal, Ghana, and Nigeria.

“Our strategy remains steadfast, focused on organic growth in Nigeria and Pan-Africa while ensuring that Africa’s regional integration becomes a reality. We will continue to contribute to improving regional trade within Africa by building plants across West and Central Africa, guided by our vision of making the region cement and clinker self-sufficient,” Dangote said through its latest annual report (2022).

“Tanzania continues to remain an attractive market for cement and clinker demand, mainly due to growth in infrastructure and housing development, including numerous government-sponsored railways, airport and road projects that are ongoing,” according to Dangote.

“Energy and power costs are the biggest cost components in the production and distribution of our products. In 2022, both our Kenya and Uganda operations were affected by external costs.”

The steady rise in oil prices was mainly driven by global supply chain challenges, geopolitical and trade tensions among the key players leading to inflation of prices of imported raw materials and energy costs especially on coal thus eroding the margins.

Source : The East Africa