Over the past month, reports are floating around that multinational cement producer LafargeHolcim is in the process of divesting and selling its Sri Lankan subsidiary Holcim Lanka Ltd.
The divestment plan is said to be in its final stages. Binding bids have been received from several companies with final negotiations to be concluded shortly.
According to local media reports, there are six leading bidders, including China, the UAE, Indonesia, Thailand and Sri Lanka.
The latest to join the Holcim Lanka Ltd. bidding process is reportedly Dubai-based Sri Lankan businessman, Nandana Lokuwithana, who owns and runs the Onyx Group and the Ceylon Heavy Industries and Construction Company (CHICO). Lokuwithana is said to have bid USD 400 million to buy Holcim Lanka Ltd., which as per reports, is valued at only USD 200 million.
An unheard of bankrupt villager from Nattandiya, Lokuwithana, is a Dubai-based Sri Lankan businessman who has the rare distinction of being named in the Panama Papers.
He is alleged to be a front man of former President Mahinda Rajapaksa and Basil Rajapaksa, and is more popularly known as the 'Sri Lankan who bought the Marriott Hotel, Dubai'. It is widely believed that this hotel (owned through Onyx) is amongst the many properties in Dubai in which Rajapaksa had invested through Lokuwithana.
Also Read
Aside the investments in Dubai, Lokuwithana had also bought Ceylon Heavy Industries and Construction company (CHICO) for US$ 77 million.
Lokuwithana is said to have strong business links with China and there is speculation on whether the bid by Onyx is just another Chinese attempt at gaining competitive control in the key and strategic ports of Sri Lanka.
This bid by the Chinese to take over strategic ports of Sri Lanka has reportedly taken India by surprise and the latter could register its concerns over this development with Colombo.
The USD 400 million Onyx's bid is reportedly backed by a comfort letter issued by a State Bank of Sri Lanka in the same amount. Lokuwithana has apparently deposited USD 200 million with the bank, and taken the letter against that deposit and monies held for Steel Corporation.
The fact is that Sri Lanka's cement sector and market appears to be heading for an irreversible change in the wake of the Sri Lankan Industry and Commerce Ministry's expression of interest to buy out Holcim Lanka Ltd.
Holcim Lanka Ltd. has a total cement manufacturing and bagging capacity of around 3.9 million tons per annum (MTPA) and is the only integrated cement plant in Sri Lanka with access to captive limestone mines. It is seen as an attractive strategic buy.
Sri Lanka has an overall market of around 6.5 MTPA, while China has a 474 MTPA capacity and a keen desire to export its cement.
With cement being one of the key industries for a growing country like Sri Lanka, it does not come as a surprise that Colombo is being careful about giving the green signal to bidders like China to establish its presence in this sector, given that the latter has a reputation and a national strategy of "dumping" exportable products at prices that are way below what they are sold in the domestic space, or below its cost of production.
China also has acquired a reputation for capturing markets and then destroying competition. So, therefore, the Government of Sri Lanka would be assessing the short and long-term effects of it entering the cement sector.
In theory though, China could consider importing large quantities of clinkers (stony residue from burnt coal or from a furnace) using the three key port terminals of Colombo, Galle and Trincomalee, instead of manufacturing cement at Holcim Lanka's integrated Puttalam plant.
Holcim invested USD 26 million as part of the 1993 agreement which gave the company the right to extract limestone for 50 years in Sri Lanka. The commerce ministry claims that Holcim has extracted nearly 4000 metric tons of limestone, the value of which is in the region of Rs. 48 billion. Holcim has also enjoyed a 12-year tax holiday from funds borrowed from within Sri Lanka, the commerce ministry has claimed, according to a report appearing in Sri Lanka's Daily News.
Sri Lanka, therefore, needs to be protective about its local industry, especially against China.
The Chinese already have access to the Colombo and Hambantota Ports, and giving them further access to the ports of Trincomalee and Galle may raise concerns. Allowing Beijing to get a foothold in the country with no conceivable benefits to Colombo could raise political eyebrows.
Holcim Lanka's assets include two packing plants in Galle and Trincomalee, a cement plant in Puttalam and a cement grinding plant in Galle.
Given Colombo's wariness over a direct entry by China in one of its key commercially profitable sectors, Lokuwithana's Onyx Group may have been recruited as a possible proxy for Beijing.