SOUTH KOREA: CRH investment spend set to pass €7bn with South Korea cement deal

CRH’s investment spend for this year looks set to inch past the €7bn mark, with the company heavily linked with an €800m move for the number two player in South Korea’s cement market.

CRH’s much-heralded €6.5bn purchase of assets being offloaded as part of the mega merger between European cement titans Holcim and Lafarge is due to formally conclude in August.

The Dublin-headquartered group is set to become the third largest building materials business in the world on the back of that deal, but management has already suggested it won’t be the limit of its 2015 spending.

Speaking after its May AGM, CRH chief executive Albert Manifold said that the group had a “very strong” acquisition pipeline, which is better than it has been for some considerable time.

The group spent €45m in the first four months of the year.

The €6.5bn spend will give it former Holcim/Lafarge assets in the Americas, Europe and Asia.

Mr Manifold suggested, at the AGM, that the group currently has a separate €1bn US deal under consideration and a €700m deal; but also noted that CRH typically concludes around one-in-10 deals which come onto its radar.

If those deals came to pass, CRH’s 2015 investment spend would comfortably top €8bn.

“It looks like the latter could be the South Korean cement business. Given the cashflow generation of CRH – net debt to EBITDA set to be close to two times at the end of fiscal-year 2016 – we believe it has the scope to continue to take part in M&A,” commented Robert Eason of Goodbody Stockbrokers in a research note yesterday.

According to a Mergermarket report, Goldman Sachs has been appointed by CRH – which declined to comment, yesterday – to bid for Tongyang Cement & Energy.

The second largest player in the Korean market has a market value of nearly €600m. Its distressed owner, South Korean Tongyang, is reportedly putting a 74% stake on the market; with a $900m (€800m) price tag being touted.

While it was thought that the €700m deal could be a European target, if the Korean deal comes off it would further boost CRH’s Asian presence, already being improved via new assets in the Philippines coming on stream via the Holcim/Lafarge transaction. CRH said, at its AGM, that it will repackage its Asian operations into a separate grouped entity next year to cater for its growing size.

The South Korean market consumes about 45m tonnes of cement from total capacity of around 65m tonnes, according to reports.