Rwanda/South Africa: The major South African cement producer PPC (Pretoria Portland Cement) has purchased a 51% stake in the Rwandan firm Cimerwa for US$69.4m in cash. The deal is in line with PPC's vision of making 50% of its revenue outside South Africa itself in the coming years. The deal comes after a similar deal between PPC and Ethiopia's Habesha Cement, of which it has bought a 27% stake.

"This transaction is a further step in our commitment to invest in sub-Saharan Africa and we are very confident about Rwanda," said PPC's CEO Paul Stuiver. "The Cimerwa plant is located in a challenging but very strategic region in East Africa, which currently lacks significant cement production capacity."

Cimerwa, in south-west Rwanda, has been the only cement producer in the country for 28 years. It has the capacity to make 0.1Mt/yr of cement but is currently undergoing a 0.6Mt/yr expansion project that is due to be commissioned in 2014.

Cement demand in Rwanda is estimated at 0.35Mt/yr but, based on the region's positive economic outlook, regional cement demand is projected to increase to 1Mt/yr in the next decade. "Combined with our recent investment in Ethiopia, the Cimerwa transaction will increase PPC's revenue outside of South Africa to more than 30% by 2015-16," added Stuiver.

"Rwanda looks like an attractive market to build capacity, with robust gross domestic product growth expectations, a large supply deficit in the cement market and challenging logistics for importing cement," said Ross Heyns, an equity analyst at Kagiso Asset Management. However, Heyns said that it appeared that PPC had paid a fairly hefty price for the asset. "After raising the additional US$104m of debt and expanding the plant's capacity to 0.7Mt/yr, the US$69.4m that they are paying for 51% of Cimerwa implies a total valuation for the business (including debt) of US$400/t of cement capacity," he said.

PPC's desire to expand to more locations outside of South Africa is in part due to the current overcapacity in that market. The country has a capacity of 16Mt/yr but is only likely to produce 11Mt in 2012. This overcapacity will not be helped when the 2.6Mt/yr Sephaku Cement plant, backed by Nigeria's Dangote Group, comes online in 2013.