Company needs to resolve short-term debts, especially those due in 2024
07/19/2023
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InterCement has already sold assets in Africa in 2023 — Foto: Divulgação
InterCement’s competitors, inside and outside Brazil, are contacting the cement company to evaluate the purchase of the company’s assets in the country and Argentina, said a source familiar with the matter. In financial restructuring, due to its high debt, the company has already sold assets in Africa this year but still needs to resolve short-term debts, especially those due in 2024.
The third family generation of the Mover group (formerly Camargo Corrêa), which controls InterCement Participações (ICP), has not yet decided to sell assets in the two countries where InterCement Brasil and Loma Negra operate. There is still no consensus on the issue — the matter has been discussed with the current directors of the holding company appointed by the representatives of the heirs, according to a person familiar with the company. Houlihan Lokey is advising the group on this process.
According to a source, there is a natural pressure to continue the asset sale program, but in his view, the ongoing restructuring process will not be sufficient to fix InterCement’s earnings reports. However, the form of the financial restructuring is still being defined.
ICP has more than $1.5 billion of net debt through 2027. Of this amount, which includes bonds held by three major banks, the largest payment is due in May 2024, a senior note of $548 million.
What the company will receive in net worth — just over $200 million — for transactions in the assets of Egypt, South Africa, and Mozambique only alleviates short-term maturity pressure during 2023.
In the evaluation of institutions with claims on the company — leader in the sale of cement in Argentina and third in Brazil — the situation of ICP will normalize only with the sale of more assets and this is the path defended by its main creditors.
However, there is a consensus in the sector and the financial market that there is a lack of firm leadership to manage the family business, which in addition to the cement company owns a significant part of CCR (infrastructure concessionaire) and real estate assets (HM and CCDI). The heavy construction business has lost momentum and the group is still trying to get rid of the Estaleiro Atlântico Sul (EAS).
Industry sources say that there may be several competitors in Brazil with the potential to take individual assets from the local operation, which has 15 plants, a regional slice, or even the whole company. IC Brasil has produced around 8.7 million tonnes of cement, with an effective production capacity of 12.2 million tonnes — 5 million tonnes are “hibernated” as a result of the shutdown of 6 plants, two integrated and four mills.
The Buzzi/Brennand and Vicat/Ciplan groups are said to be interested in evaluating ICP’s initiative to put assets up for sale. As the market leader, Votorantim Cimentos is very targeted by CADE, the Brazilian antitrust agency, so, it could only look at assets that do not overlap with its business — around 35%.
Benjamin Steinbruch’s CSN Cimentos, in turn, would have an interest in all the Brazilian assets. But CSN was also big in Brazil, with 18% to 20% of the market, after acquiring Elizabeth and Lafarge Holcim in a deal that totaled $1.25 billion.
However, the company’s presence in the Center-West region is low and nonexistent in the South. InterCement has assets available in both regions: two plants in Rio Grande do Sul, one in Goiás (Cezarina) and another in Mato Grosso do Sul (Bodoquena).
Two other groups could make a move: the Greek Titan, which has 50% of Apodi in the Ceará state; and Mizu, one of the five largest cement companies in the country which belongs to the owners of the concrete company Polimix.
In Argentina, Mexico’s Cemex groups — a cement giant in the Americas — Colombia’s Cementos Argos and Peru’s Cementos Pacasmaio are said to have surveyed Loma Negra, which operates nine plants and has about 45% of the market. Although smaller than IC Brasil, Loma Negra’s commercial and profitability performance has been superior to that of the Brazilian company.
ICP holds just over 50% of Loma Negra’s capital, having sold 49% of its shares in 2017 on the New York and Buenos Aires stock exchanges, raising more than $1.1 billion. This was done as part of ICP’s financial deleveraging process. This process had a new operation in October 2018 with the sale of the assets in Portugal and Cape Verde for $800 million to the Oyak group of Turkey.
InterCement does not have a formal mandate to sell assets inside and outside Brazil. J.P. Morgan has advised the company on the sale of units in Egypt, South Africa, and Mozambique.
There is an understanding that it would not be the right time to divest the assets in Argentina, as the country is on the eve of presidential elections. A person familiar with the matter said the process is expected to take place in the coming months.
In Brazil, a part of the leadership group of Mover and ICP, which changed management in April, believes that divestiture would devalue the cement company’s portfolio. Hibernated units would have to enter the process. This risk is considered by industry executives since 40% of the factories are paralyzed due to overcapacity concerning cement consumption.
According to the National Cement Industry Union (SNIC), the sector operates with an idle capacity of 34% and the best prospect is that sales this year will be the same as in 2022. A source said that because of this, all the major manufacturers have closed plants. IC Brasil would be no exception.
According to ICP information material, the plants, and mills of João Pessoa (Paraíba state), Suape (Pernambuco state), Brumado (Bahia state), Pedro Leopoldo (Minas Gerais state) and Cubatão and Jacareí (São Paulo state) are hibernating.
Although ICP has gained some financial momentum in the short term with the sale of African assets, there is a consensus that the company needs to have guaranteed liquidity for debts that mature as early as 2024.
ICP has hired Houlihan Lokey to assess the company’s situation and to discuss with the heirs the key strategic decisions for the financial restructuring of the cement company. E. Munhoz law firm is providing legal advice.
The bonds mature in 2024. There are reports that the American bank Moelis has been hired to represent the bondholders.
Asked, InterCement did not comment. Argos, Cemex, and Pacasmaio did not reply to requests for comment. In a statement, Mover declared that “InterCement is committed to achieving the best adequacy of its capital structure, with the restructuring of its debt”.
*Por Mônica Scaramuzzo, Fernanda Guimarães, Ivo Ribeiro — São Paulo
Source: Valor International