KARACHI: Bestway Cement Ltd on Wednesday entered into a non-binding memorandum of understanding with Dewan Cement Ltd (DCL) for the proposed acquisition of its north plant, including land, production facility and mining leases/licences.

In doing so, the company of Pakistan-born British businessman Anwar Pervez appears to have outbid several contestants, including Lucky, Kohat and Fecto.

However, both companies in their notices to the Pakistan Stock Exchange on Wednesday did not disclose the price of the acquisition.

A bit of furore was noticeable in the industry last September when an unnamed Chinese company also expressed intention to conduct due diligence of the DCL plant.

The DCL’s north plant — located in Hattar, district Haripur, Khyber Pakhtunkhwa — has a capacity to produce one million tonnes of concrete. The acquisition would help Bestway, which already has a capacity of 7.9m tonnes, fortify its position as the biggest player in the industry in terms of capacity.

Bestway previously acquired Lafarge Cement. Industry sources said that Bestway’s biggest disadvantage has been the higher cost of production due to its location in the north, unlike its archrival Lucky Cement, which has a plant in the southern zone.

DCL has a second plant in the south with a capacity of 1.9m tonnes, which after the separation of its northern unit would be debt free, albeit with lower aggregate capacity.

But why were so many companies — some said five, excluding the Chinese contestant — were in the run to acquire the DCL plant? A person in the know of things said that a major attraction was the mining leases/licences placed on the table alongside the plant. The governments of Punjab and KP have suspended issuance of new licences for the last one year.

The Chinese company that decided to conduct due diligence of the DCL plant is thought to have stepped back on the issue of pricing. Some cement analysts reckoned it to be Anhui Conch Cement Co Ltd, one of China’s biggest cement producers.

Chinese companies are known to be making efforts at acquisition of a cement plant in Pakistan. A sector watcher counted several reasons for the Chinese interest in buying out an existing listed cement company.

One, a listed company means the buyers could set their mind free in regard to correctness of disclosed information; second, it would accompany the mining lease, and lastly, with already existing capacity, the buyer’s cash flow would be comfortable from the day of acquisition. “A new cement plant would take at least two to three years to reach the gestation period,” said this person.

Under the memorandum, the buyer has the sole and exclusive right to negotiate the terms and structure of the proposed transaction with the seller for a period of 15 days, or other mutually agreed date, to enter into definitive documents.

The transaction is conditional on the receipt of all relevant corporate, regulatory and creditor approvals.

Published in Dawn, February 23rd, 2017