Raysut Cement Company, Oman's largest producer, has moved forward with a $172 million deal to buy a UAE competitor.
The acquisition of Pioneer Cement, a joint venture set up between Ras al Khaima Investment Authority and Penna Global Investments, is being financed by a consortium of banks led by Bank Dhofar of Oman, Raysut said today in a filing to the Muscat Securities Market,
Building material suppliers have been hit hard by the property downturn over the last two years, but the situation has been even more challenging in Oman where increasing competition with UAE companies was squeezing profit margins and hurting sales.
Analysts at Global Investment House in Kuwait last month downgraded Raysut's stock to "reduce", citing increasing competition with UAE companies and calling the planned acquisition of Pioneer "not fruitful". Raysut's 2010 year-end profits are expected to fall 20 per cent to 22.9m rials, the analysts said.
Cement prices have been on the decline in Oman. They averaged about $70 a tonne for the first nine months of 2010, compared to $82.70 a tonne in the same period in the year before.
Raysut yesterday said the acquisition had "happened at an opportune moment when the economy is at a take-off stage from its recent debacles".
"This would strengthen the marketing, technical and financial capability of [Raysut] to face the newer challenges in the coming years," the statement said. "With all these growth stories and those which are still to come in future, Raysut is placed well in the forefront of cement Industry not only in Oman but as a significant player in the region.
This article has been modified from the original to reflect that analysts at Global Investment House were incorrectly quoted as saying the acquisition of Pioneer Cement by Raysut Cement Company would cut Raysut's 2010 year-end profits by 20 per cent. In fact, the analysts did not make a connection between the predicted decline in profits and the deal. In the same story, The National incorrectly reported that gross profit margins in the UAE were 31.8 per cent. In fact, they were 21.8 per cent. The National regrets the errors.