Companies in Asia that want strategic partners from outside their home markets to help them build their businesses are starting to realise that such marriages don't always last forever. There have been numerous cases in which a foreign partner has walked away either because of financial trouble at home or for other strategic reasons.
The latest drama to play out is the planned divestment of shares held by Holcim, one of the world's leading cement makers, in Thailand's Siam City Cement Plc (SCCC) after nearly two decades.
More such exits from Thailand may be in the works. The UK retailer Tesco is divesting assets to raise money and its Thai operation is an attractive catch. Ironically, Tesco's French rival Carrefour exited Thailand a few years ago largely because it was unable to keep pace with the British company in the hypermarket business. In the financial sector, big names leaving the scene include GE Capital, which cashed out of Bank of Ayudhya with a handsome profit, and Singapore's DBS Group.
It Thailand's case, however, the departure of foreign partners usually ends up strengthening the position of Thai tycoons.
The ongoing negotiations for the sale of the 27.52% stake that Holcim holds in SCCC are attracting foreign investors although industry insiders say the most likely candidate for the purchase worth about 26 billion baht is the Ratanarak family, which already holds 47% of Thailand's second-biggest cement producer.
The divestment by Holcim is part of a series of strategic moves resulting from the merger, still in progress, between two of the world's largest cement makers, with repercussions in Thailand and around the world.
Switzerland-based Holcim and France-based Lafarge this month reached agreement after months of tense negotiations on a tie-up that would create the world's largest construction materials group with a value of US$44 billion.
Some of the assets in Asia, which have given Holcim the upper hand in the merger talks, are on the block because of anti-monopoly laws. In India, the two European giants' combined local operations would exceed legal thresholds and threaten domestic players.
In other markets, the two companies are simply looking to dispose of assets they consider "non-core".
While Holcim has been an active participant in bringing its expertise and technology to revamp the operations of SCCC, the Swiss company sees its 27.52% holding as too small to give it meaningful management control. As well, the local industry is not very profitable.
The Swiss company, then known as Holderbank, acquired 36.8% of SCCC during the 1997-98 financial crisis in Thailand, and in 2012 sold off a 9% stake to raise funds to help keep its ratings obligations intact.
"You have to look at the reasons why the divestment is taking place and it is not about a controlling stake or anything but the fact that there is very little margin in the cement industry in Thailand," said another cement producer who declined to be named.
Cement prices have risen little over the past decade in a domestic market that has long suffered from overcapacity, so attracting new investors, especially foreign ones, will not be easy.
Industry insiders say the Ratanarak family has known since 2012, when it purchased the 9% stake Holcim offered, that the Swiss partner was not going to stay for much longer.
The family reportedly is keen to purchase the remaining 63.29 million shares (27.52%) held by Holcim, although that would trigger a tender offer for the remaining shares under Securities and Exchange Commission (SEC) rules.
"They are very interested in acquiring the stake but all the details need to be worked out," said an investment banker close to the family.
NEW PARTNERS
Another investment banker said that Siam Cement Group (SCG), which leads the local market with a 40% share, might be interested.
"We don't comment on anything that is speculated, especially when both our company and another company are listed on the stock market," SCG chief financial officer Chaovalit Ekkabut told Asia Focus.
Global cement players such as Mexico-based Cemex and Italy's Italcementi, which already have a presence in Thailand, reportedly are not keen given the low profit in the cement business locally.
"I don't think any one of the current global players would be keen to participate," said an executive of one of the top three.
But reports have emerged that regional cement giants from India and Indonesia are keen to participate in the deal as well.
"The acquisition by the likes of Indocement would give the Indonesian giant a foothold in Thailand and the Greater Mekong subregion," another industry executive said.
Indocement, which has an installed capacity of about 20.5 million tonnes per year, is Indonesia's second largest cement maker after Semen Indonesia which has the capacity of 30 million tonnes and is also the Asean leader.
The two top Indonesian players are looking at expanding their production by 8.8 million and 11.5 million tonnes respectively by the end of 2017.
"A move by an Indonesian cement player [to acquire shares in SCCC] would give the Indonesians a foothold in Thailand as Siam Cement makes a move into the Indonesian market," one executive said.
SCG is preparing to add 1.8 million tonnes of capacity at a new plant in SSukabumi in West Java by 2017.
Indocement is 51% owned by Germany-based Heidelberg Zement, and the German company in the past has expressed an interest in Thailand.
However, people close to Heidelberg told Asia Focus that it was unlikely that the German company or a subsidiary would be keen on taking on a stake in SCCC.
"It doesn't make sense that one multinational leaves and another one takes its place. One has to question why a joint partner for nearly two decades has to sell out like this," said one source.
Another player that might be interested is UltraTech, owned by the Indian conglomerate Aditya Birla Group, which had looked into SCCC before.
"Yes, we know that there was a study undertaken a few years ago on Siam City Cement but we have no clue whether it would be done this time around or not," said an executive at the group in Bangkok.
Mumbai-based UltraTech has said in the past that it plans to add 20 million tonnes to its current capacity of 58 million, for which acquisitions would be necessary.
It has been reported that the company is also scouting for assets and sites to build plants in Indonesia, Thailand, Myanmar, Oman, the Philippines and Malaysia. It is already present in the United Arab Emirates, Sri Lanka, Bangladesh and Bahrain.
WAITING GAME
Prinn Panitchpakdi, country head of CLSA Securities (Thailand), said it was still not 100% certain whether Holcim would sell off its share in SCCC. CLSA is arranging meetings for Holcim with potential buyers. JP Morgan is Holcim's lead adviser for the sale.
"At present, the company is in the stage of checking market responses to its decision to make SCCC ownership available for sale. If the interest [in buying] is not strong, they might pause the sales plan for the time being," Mr Prinn told Asia Focus.
The Swiss group has had meetings with potential buyers from the US, Europe and Asian countries including Thailand. A final decision should be made within two months, he added.
"The buyers could be either cement makers or institutional investors and it is likely that they would sell to more than one company," noted Mr Prinn.
SCCC executives told Asia Focus that the company was informed long in advance about Holcim's plan to divest its ownership, prompting the Thai cement maker to outline measures to deal with possible impacts, including on exports.
"It is [part of] Holcim's portfolio adjustment process that it decided to make 27.5% of SCCC available for sale," one SCCC executive said on condition of anonymity.
"I will say there will be no impacts. Our shipments to Cambodia, Myanmar, Laos and other countries will continue without disruption."
Last year, SCCC reported total revenue of 31.86 billion baht, up 6% from 2013, with net profit also rising 6% to 5.08 billion.
Prachai Leophairatana, CEO of Thailand's third largest cement producer, TPI Polene Plc (TPIPL), told Asia Focus that he had not been approached by Holcim.
"I might not have enough money if they asked me to buy," joked Mr Prachai, adding that he didn't foresee a change in the local competitive picture with a change of shareholders at SCCC. "I don't think Thai companies need foreign partners. We are strong enough to compete."
Surachai Pramualcharoenkit, an analyst with Maybank Kim Eng Securities (Thailand), said the possible exit of Holcim would not have significant impact on SCCC operations. He said management would be little changed and the Thai cement maker had developed its own marketing an export network to neighbouring countries.
Exports to South Asia have been made with support from Holcim's network but both companies are likely to maintain business partnerships, thus minimal impacts are expected, he added.