Namibia: Call for Public Input On Ohorongo Takeover

The Namibia Competition Commission has invited contributions from members of the public concerning the second bid to sell Ohorongo Cement, to Chinese giant West China Cement Limited.

The input from members of the public would be delivered through a conference set up at the commission's offices on Thursday morning.

The proposed acquisition is deemed to create a monopoly in the cement industry for West China Cement Limited (WCC), which also has a majority stake in Cheetah Cement - the sole competitor to Ohorongo Cement.

This new sale proposal follows a failed bid by another Chinese company early last year, which was blocked by the Singaporean Stock Exchange, based on the weak profitability prospects of Ohorongo Cement.

The stock exchange said the non-profitability of the Ohorongo Cement would bring the value of the buyer down, or the cement plant might not make enough profit to repay the N$1,5 billion loan with which the plant was to be paid for.

German company Schwenk Zement has, however, found another Chinese buyer, WCC, with the acquisition hinging on the approval of the Namibia Competition Commission after acquiring public opinion.

WCC wants to acquire a majority stake in Schwenk Namibia Proprietary Limited and all claims held by Schwenk Zement International GmbH & Co. KG against Schwenk Namibia Proprietary Limited.

The conference will give the public a platform to give their opinions on the takeover, and help the commission to arrive at the right decision on the proposal.

Setting up the conference is allowed in terms of section 46(1) of the Competition Act before the commission can take any decision.

The commission will seek public opinion on various issues that could be affected if the Chinese company takes over Ohorongo Cement, and on top of this list would be the lessening of competition in the cement sector, as Rock Cement (Cheetah Cement) owners are also linked to WCC.

"Concerns remain as far as relationships between the acquiring group and Cheetah Cement is concerned, and/or products," the commission said.

The commission also highlighted that employment concerns have been raised that after the acquisition, the Chinese company would replace Namibian employees with foreign employees.

Another issue is localisation or award of outsourced services, goods, and/or products to foreign companies as opposed to Namibian companies.

"Concerns have been raised that the foreign companies avoid localisation requirements by awarding tenders for services, goods to foreign companies registered in Namibia but which are fully foreign-owned and related in some manner," highlighted the commission.

The commission added that this further cuts out any Namibian competitors from providing services in the relevant market.

Another issue raised if the acquisition is allowed is potential mispricing that could exist as the Chinese contractors also dominate construction industries in Namibia.

As a result, the commission is worried about "the negative implications of transfer mispricing post-merger".

Ohorongo Cement owns and operates a cement plant at Otavi, with an annual production capacity of one million metric tonnes.

The total subscribed, issued and fully paid-up share capital of Ohorongo Cement is around N$2 billion.

WHY COMPETITION

According to First Capital's January 2020 House Building Cost Index, the total domestic production capacity of cement remains high after it more than doubled to 2,2 million tonnes per annum in 2019 from one million tonnes in 2018.

First Capital said the increase in volume was attributed to the expansion of the industry "due to a new entrant (Whale Rock Cement) in the cement production market".

Their price analysis shows that both Semi (32.5) and high (42.5) strength cement recorded a price decline of 2,4% and 2,1%, respectively, in January 2020 compared to January 2019.

The third year of suppressed cement prices were initially triggered by the slowdown in construction activities.

Additionally, First Capital attributed 2019's price decline to the increased competition among suppliers of cement in the face of subdued demand due to a slowing economy.

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