Holcim, the world's second-biggest cement producer, on Tuesday said it would spend almost $600m to expand in India, underlining the determination of leading manufacturers to tap into key growth markets.
Holcim's move follows plans by Lafarge, the world's biggest cement maker, to double investment in China to $1.5bn over the next five years. India, with China, counts among the world's fastest-growing markets amid surging demand for residential and commercial projects, and big infrastructure schemes.
Paul Hugentobler, Holcim's executive board member responsible for India, said that the country's cement demand should accelerate to 9-10 per cent a year on the back of infrastructure and commercial projects. Temporary supply shortages have already emerged in some regions, and may deepen as investments in capacity lag behind demand.
Holcim will raise its stake in Ambuja Cements (ACL), one of India's youngest and most dynamic producers, to 46 per cent, sealing the Swiss group's position as by far the biggest foreign investor in the Indian cement industry.
The move follows the announcement last August that Holcim would spend $220m buying a further stake of almost 4 per cent of ACL, in which it already held 32 per cent, from the founding families. That has now been succeeded by purchases on the market and through a compulsory tender offer, at a combined cost of about $560m, taking Holcim's total participation to 46 per cent.
The increased holding will fuel speculation that Holcim may eventually want to merge ACL and ACC, the Indian market leader, in which it has a separate 43 per cent shareholding. Together, ACL and ACC comprise India's secondbiggest cement producer with about 24 per cent of the market, just behind the combined share of the group comprising Grassim, Ultratech and linked companies.
Mr Hugentobler denied merger plans and stressed ACC's and ACL's diverse backgrounds and cultures. He also argued there was no financial case to buy out minorities or combine the two, as both had massive investment plans that would soak up their cash flows for some years ahead.
However, Holcim, which only entered India in earnest in 2005, confirmed it would use special domestic legislation to continue raising its stakes in ACC and ACL.
Although Holcim already enjoys management control, and consolidates the earnings of both companies, executives said they would buy additional shares each year up to the 5 per cent limit that Indian rules allow without triggering a full takeover bid.
That would mean, in the case of ACL, that Holcim should exceed the 50 per cent mark by the middle of next year.
The public commitment to continue buying may explain why only a small proportion of ACL shareholders responded to Holcim's tender offer. At Monday's close, only 5 per cent of ACL's capital had been tendered, compared with the 20 per cent ceiling on the offer, in a result below Holcim's expectations.
"As long as we are around 50 per cent, we are comfortable," said Mr Hugentobler in an interview last week.
Holcim said the outcome reflected ACL investors' bullish outlook.