Listed cement and lime producer PPC is poised to enter the Algerian market through a partnership with Algerian private sector investors in Hodna Cement Company and the acquisition of a 49 percent stake in the Algerian company.
PPC said yesterday that Hodna would build a plant for about $350 million (R3.87bn) in the Hodna area about 300km east of Algiers, close to the technology-focused university town of Setif. The plant would produce 2 million tons of cement a year.
PPC would acquire a 49 percent stake of Hodna for an undisclosed amount. It would assume management control, which allowed for the consolidation of the financial results of this project into the PPC group accounts.
The transaction would be funded on a project finance basis, with 80 percent debt funding from Algerian banks.
Azola Lowan, the head of strategy and investor relations at PPC, declined yesterday to comment on PPC’s total investment in the Algerian project.
The investment forms part of PPC’s Africa expansion strategy, which has thus far secured markets in Rwanda, Ethiopia and the Democratic Republic of Congo (DRC). Expansion in Zimbabwe is next in the crosshairs.
PPC’s target is to increase revenue generated from outside South Africa to 40 percent by 2017. Ketso Gordhan, the chief executive, said yesterday that PPC’s Algerian partners had experience in construction and related sectors.
The Algerian cement market was very attractive because consumption exceeded local production by about 3 million tons of cement a year.
Gordhan said the Algerian government had committed itself to large-scale capital spending programmes, which would boost the demand for cement. These included the $6bn Hassi Messaoud New City project, which involved the roll-out of thousands of housing units.
Once the feasibility study for the plant had been concluded, construction would take up to 30 months. Commissioning was expected by the fourth quarter of 2016.
As with its other expansion projects, PPC intended to engage China’s Sinoma International Engineering as the contractor to supply and build the plant, with the support of project management specialist Holtec Consulting of India.
Gordhan said the selling price for cement in Algeria ranged between $80 and $120 a ton, with favourable costs of production. Gas prices were affordable and the factory site was well located, with raw materials close by. The well-developed road and rail network would help in managing the cost of logistics.
“With a population of close to 40 million people, of which 74 percent live in urban areas, and a relatively high gross domestic product per capita of $5 582, Algeria still requires the construction of 225 000 housing units a year to meet demand. The national housing shortage in Algeria is estimated at 1.2 million units,” he said.
PPC’s new Rwanda plant is expected to be commissioned by the end of this year.
Construction has already begun on PPC sites in Ethiopia and the DRC.
PPC edged up 17c to close at R29.48 on the JSE yesterday, off a high of R29.87.