(Yicai) Nov. 9 -- Shares of Huaxin Building Materials Group plunged after the leading Chinese cement supplier said it has agreed to take control of CSN Cimentos Brasil for BRL9 billion (USD1.6 billion), less than 10 days after entering exclusive talks with its owner, Brazilian steel giant Companhia Siderúrgica Nacional.

Huaxin [SHA: 600801] finished 8.5 percent lower at CNY25.12 (USD3.76) a share in Shanghai today, having soared about 28 percent since announcing it had entered exclusive talks to buy CSN Cimentos on Oct. 30, hitting a 52-week high on Nov. 6. Its Hong Kong-listed stock [HKG: 6655] ended down 5.2 percent at HKD16.77 (USD2.14).

Huaxin agreed to buy 99.99 percent of CSN Cimentos on Nov. 7, with the acquisition still subject to regulatory approval in Brazil and China, the Wuhan-based company said in a stock exchange filing late yesterday. Despite the target's value being cut from the previously agreed BRL12.7 billion (USD2.3 billion), the deal still represents around a 34 percent premium on its book value as of Dec. 31.

CSN Cimentos, which has grown into Brazil's second-largest cement producer through a series of acquisitions and plant building in recent years, has limestone reserves of about 2.2 billion tons, runs seven plants with kilns and six grinding stations, and has an annual production capacity of 17 million tons, with a local market share of about 21 percent, Huaxin pointed out. 

CSN Cimentos mainly serves northeast and southeast Brazil and boasts above-average capacity, technology, and operational performance, Huaxin added.

CSN Cimentos logged a net loss of USD11.8 million in the first half of this year on revenue of USD510 million, compared with a net profit of USD24.1 million and revenue of USD890 million for the whole of last year, Huaxin said. Its assets stood at almost USD2.5 billion and liabilities at USD1.2 billion as of June 30.

Huaxin attributed CSN Cimentos' subdued performance mainly to the high cost of financing resulting from the financial difficulties of its existing shareholder, noting that after the deal closes, it plans to gradually refinance the target's high-interest bank loans to improve profitability.

The acquisition represents a major milestone in Huaxin's strategy to expand into high-potential emerging markets, specifically South America's building materials sector, and marks the first entry of a Chinese cement producer into the Brazilian cement market, it pointed out. Huaxin will leverage its proven track record of integrating acquired assets, together with its industrial, technological, and management strengths, to lift CSN Cimentos' operating performance, it added.

This marks Huaxin's second major asset acquisition in Brazil. In March last year, the company completed buying Embu S.A. Engenharia e Comercio, a leading supplier of building aggregates in São Paulo. Cement and aggregates are the two main raw materials for making building concrete.

Huaxin, whose largest shareholder is a subsidiary of Swiss Holcim, sold 34.79 million tons of cement and commercial clinker in the first half, including 13.18 million tons overseas, according to its first-half financial report. It has cement businesses in 14 countries outside China, mainly in Africa and Central Asia.

Editor: Martin Kadiev