Business

Future not set in stone for Jordan Cement

What's Down: Jordan Cement suffers big losses amid increased competition and rising costs in the Kingdom.

Hadeel al Sayegh

April 09, 2012

The construction sector has been one of the biggest casualties of the property downturn, and the industry's suppliers are also feeling the impact.

Lafarge's Jordanian business is one company with direct exposure to the sector that is struggling to find business.

Jordan Cement, which is 50.3 per cent owned by Lafarge, one of the world's largest cement makers, reported 20 million Jordanian dinars worth of losses after barely breaking even in 2010. Revenues dropped to 134m dinars, a 21 per cent drop from the year earlier period.

The company, which once had a monopoly in the country, has been struggling from increased competition ever since a fourth cement factory opened in March last year, while rising costs have been eating away its revenues.

Jordan Cement manufactures, distributes and trades cement inside and outside the kingdom. It has two plants, in Al Fuheis and Al Rashadiyah, with a combined production capacity of 4.8 million tonnes a year. Production was the lowest in 11 years last year.

Jordan Cement stopped exporting the commodity to neighbouring Syria, Iraq and Sudan last year as it struggled with high fuel, electricity and transport costs. The company has been in negotiations with the government to allow the use of coal as a cheaper power alternative. One of Jordan Cement's main domestic competitors benefits from purchasing the raw material to make cement from abroad, which it buys at a lower price.

"There are talks with the government to allow us to use coal," the company's chief executive Salem Sousou told Bloomberg News in August. "If there is no progress we have no future and we cannot compete, especially as rivals are allowed to use it. This means shutting us down."

The company has "responded to problems by closing down production lines and offering retirement packages in order to decrease employees", analysts at Al Arabi Investment Group, a member of Arab Bank group, said in a note to clients.

The company's "provision expense against lawsuits increased 97 per cent to 4.2m dinars, in addition the company reported 13m in losses due to lower value of equipment and spare parts," the note added.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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Based: Tunisia 
 
Sector: Water technology 
 
Number of staff: 22 
 
Investment raised: $4 million