Oman's Raysut Cement to buy UAE rival

Byswb

Updated Tue, 04 Jan 2011 00:00:00 GMT

Raysut Cement, Oman's largest producer, is nearing a US$172 million (Dh631.7m) deal to buy a UAE competitor.

The acquisition of Pioneer Cement, a joint venture set up between Ras Al Khaimah Investment Authority and Penna Global Investments, is being financed by a consortium of banks led by BankDhofar of Oman, Raysut said yesterday in a filing to the Muscat Securities Market.

Building materials suppliers have been hit hard by the property downturn over the past two years, but the situation has been even more challenging in Oman, where increasing competition with UAE companies was squeezing profit margins and hurting sales.

Analysts at Global Investment House in Kuwait last month downgraded Raysut's stock to "reduce", citing increasing competition with UAE companies and calling the planned acquisition of Pioneer "not fruitful".

The deal would cut Raysut's end-of-year profits for last year by 20 per cent to 22.9 million Omani rials (Dh218.44m), the analysts said.

Shares of Raysut remained unchanged yesterday at 1.245 rials.

Cement prices have been on the decline in Oman. They averaged about $70 a tonne for the first nine months of last year, compared with $82.70 a tonne over the same period the year before.

Gross profit margins on cement in Oman and the UAE have been significantly different.

In 2009, margins in Oman were 45.6 per cent, while in the UAE they were 31.8 per cent.

"The acquisition would dilute margins," said Hettish Kumar, an analyst at GIH. Cement companies in the UAE were hurt by the decline of local stock markets. During the inflationary period of 2008, when the Government introduced price controls to counter inflation in the property industry, producers struggled to sell cement at a profit.

The controls encouraged some cement companies to generate profits by investing in local stock markets.

But when markets plunged during the second half of 2008, with the Abu Dhabi Securities Exchange General Index tumbling more than 50 per cent and the Dubai Financial Market General Index 74 per cent, cement producers incurred losses on their investment portfolios.

Raysut said yesterday the acquisition had "happened at an opportune moment", when Oman's economy was emerging from an economic slowdown.

"This would strengthen the marketing, technical and financial capability of [Raysut] to face the newer challenges in the coming years," the company statement to the Muscat market said.

"With all these growth stories and those which are still to come in future, Raysut is placed well in the forefront of cement industry not only in Oman but as a significant player in the region."