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CEMEX CONTINUES AGGRESSIVE EXPANSION DESPITE DOWNTURN IN MEXICAN & GLOBAL ECONOMIES.

Mexican-based multinational company Cementos de Mexico (CEMEX) is continuing an aggressive expansion program despite the economic slowdown in Mexico and around the world.

Like most Mexican companies, CEMEX reported a slump in sales during the third quarter of the year. But CEMEX officials said the 5% to 6% decline in business would not necessarily translate to a drop in revenues because of an increase in prices and changes in the foreign-exchange markets.

"We have developed our own technologies and production and logistic procedures to achieve savings of US$80 million, which compensates partly for the fall in the market," said Francisco Garza, CEMEX's president for North America.

CEMEX seeks to expand presence in Southeast Asia

In recent weeks, CEMEX has placed bids to acquire or expand its presence in two cement companies in Southeast Asia and has announced the creation of a new subsidiary to sell building supplies in Mexico at the retail level and via the Internet.

In September, CEMEX offered a bid to acquire Thailand's heavily indebted TPI Polene PCL (TPIP) and to expand its ownership in Indonesia's PT Semen Gresik.

CEMEX offered US$300 million to acquire a 73% share in the Thai company, but the takeover bid met strong opposition from TPI Polene's creditors. TPIP is Thailand's third-largest cement manufacturer.

TPIP's principal creditors--which include Germany's Kreditanstalt fuer Wiederaufbau and Thailand's Bangkok Bank and Krung Thai Bank--raised concerns about the lack of transparency in the transaction and the low selling price.

The proposed deal would have required the creditors to write off debt repayments of US$400 million rather than the US$75 million proposed in TPIP's original debt-restructuring plan, analysts said.

Because of these concerns, TPIP creditors postponed a decision until the end of October or beginning of November while a compromise is negotiated with CEMEX.

A CEMEX spokesperson said the company is willing to negotiate with the creditors but also said the company was standing by its offer of US$300 million for TPIP. "The ball is in their court," said the spokesperson. "We have presented an offer, and now the decision is up to them."

CEMEX is also seeking to become the largest shareholder in Gresik by acquiring the Indonesian government's 51% stake in the company. At present, CEMEX owns a 25.5% share in Gresik.

The Indonesian government, which is selling off its share in several state-run enterprises, is hoping to obtain US$520 million for Gresik, Indonesia's largest cement company. The two sides do not expect to complete the transaction until November at the earliest.

CEMEX hopes to greatly expand its share of the Asian market with its bids for TPIP and Gresik. In May, the company--which is the world's third-largest cement manufacturer--acquired Japanese company Wangan for US$23 million and Thailand's Saraburi Cement Co. for around US$73 million. The company also owns controlling interest in two cement companies in the Philippines: APO Cement and Rizal Cement.

"We are planning on spending US$2.5 billion for acquisitions during the next year, and Asia is our focus," CEMEX president Lorenzo Zambrano told reporters in August.

Zambrano said the company is interested in boosting its presence in Thailand, India, Indonesia, and China. But the purchase of TPIP and Saraburi Cement Co. are especially strategic for the Mexican company.

"This strengthens our position in the region," said Hector Medica, CEMEX's vice president for planning and finance. "Thailand is the region's largest exporter and a major supplier to the US market."

In recent years, CEMEX has also expanded into North Africa, Latin America, and the US (see SourceMex, 1999-06-30, 2000-10-11).

Company sees promise in domestic building-supply market

Besides its incursion in the Asian market, CEMEX is also making inroads in the Mexican retail sector and the Internet. In late September, CEMEX announced plans to invest US$20 million to US$25 million to launch a chain of retail stores to sell building and home-improvement materials similar to US companies like Home Depot and Lowes.

"We will launch a new company called Arkio, which will offer construction-industry professionals a one-stop place to purchase all the materials they need, offering some 40,000 products at competitive prices with delivery guaranteed in less than 48 hours," CEMEX said in a press release.

As part of the Arkio operation, CEMEX is also creating CXNetworks, which will offer supplies through the Internet. CXNetworks director Juan Pablo San Agustin said the Internet offers construction companies the option of acquiring materials from sources other than local suppliers.

"The builder will see savings in lower inventories and less waste and because we are going to guarantee the arrival of materials," San Agustin said.

The CXNetworks executive said the company would make use of a network of 3,000 distributors of cement and concrete in Mexico.

"Our mission is to develop new businesses that will extend the reach of CEMEX to areas that are complementary to its principal business," said San Agustin. "That is why we have created Arkio."

CEMEX's domestic operations also received a boost when the federal environmental protection office Procuraduria Federal de Proteccion Al Ambiente (PROFEPA) said that the company's 15 cement-producing plants in Mexico had met the government's anti-pollution requirements.

To meet the anti-pollution requirements, CEMEX installed special equipment to monitor and prevent air and water contamination and to reduce energy consumption, company officials said. (Sources: El Economista, 05/17/01; Associated Press, 09/25/01; Spanish news service EFE, 09/26/01; The News, 09/27/01; Notimex, 05/11/01, 09/24/01, 10/01/01, 10/02/01; Reforma, 08/29/01, 10/02/01; Reuters, 09/26/01, 09/27/01, 10/02/01; El Universal, 08/09/01, 10/01-03/01; Excelsior, 09/25-27/01, 10/03/01)
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Publication:SourceMex Economic News & Analysis on Mexico
Date:Oct 3, 2001
Words:954
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