Shares of struggling West China Cement (西部水泥) plunged as much as 34 percent yesterday after a much-needed merger deal with the country’s largest cement maker collapsed last week.
Major rival Anhui Conch Cement (安徽海螺水泥) offered nearly US$600 million for a controlling stake in the firm late last year, but China’s commerce authorities failed to approve it by the deadline on Thursday last week, scuttling the deal, Anhui Conch said on its Web site on Thursday.
Hong Kong-listed shares of West China Cement dropped as much as 34 percent to HK$0.71 when it resumed trading yesterday morning, compared with its previous close of HK$1.07. It closed the day at HK$0.81, down 24.3 percent.
It was believed the merger was part of an effort by Beijing to tackle overcapacity in the industry, which is dominated by inefficient, largely state-owned companies.
A merger with Anhui Conch would also have given West China Cement, which posted losses of 309 million yuan (US$46 million) last year, a boost with better financing access.
Analysts believe the deal collapse is a “business decision” given the firm’s weak books.
“Investors had doubted about its accounting practices... It was trading down for a very long time until an upcoming Anhui Conch deal gave it a boost. Now the stamp of confidence is gone,” said Jackson Wong, associate director for Simsen Financial Group in Hong Kong.
Rumors the deal was in danger saw its shares plunge 33 percent in Hong Kong on Tuesday last week before they were suspended from trading.
It has lost half its capitalization in the past two trading days, according to Bloomberg News.
Wong said he believed Beijing would continue restructuring efforts despite the collapse of the deal.
“The Chinese government is still trying to push bigger players to merge with smaller players to improve capacity and efficiency,” he said.
China’s cement industry boomed during the country’s three decades of massive investment in highways, airports, apartment buildings and office blocks, bloating to more than 3,300 firms.
Restructuring has been difficult as most major industrial firms have powerful political backers, making efforts to shutter or merge them particularly challenging.
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