Review Holcim share price valuation

Lafarge Surma Cement has appealed to Bangladesh Bank to review its valuation of Holcim share price, which the French cement maker says has been significantly undervalued by the central bank.

The central bank in September allowed Lafarge to repatriate Tk 504.78 crore by cutting down each share price of Holcim Cement Bangladesh to Tk 57,202 from Tk 1.06 lakh set by the company.

In December last year, Lafarge Surma signed an agreement with the Amsterdam-based Holderfin to purchase its holdings of Holcim Cement Bangladesh for Tk 936 crore ($117 million). Each of Holcim's 88,244 shares was valued at $1,325.88 (Tk 1.06 lakh).

“We smell laundering of money through the overvaluation of Holcim shares,” said a BB official requesting not to be named.

The central bank has set the share price of Holcim in line with the international valuation method, said another BB official.

It compared the share price of Holcim with that of British American Tobacco Bangladesh Company, whose share is considered the most expensive in the Dhaka stock market.

With a Tk 10 face value, the current market price of each share of BATBC is Tk 2,960.

The BB also looked at the share price of Heidelberg Cement Bangladesh, a comparable stock for both Lafarge and Holcim.

Each Heidelberg share, which has a face value of Tk 10, traded at Tk 415.90 yesterday. The face value of Holcim shares is Tk 100.

“The difference between the amount agreed in the share purchase agreement and the amount approved by the BB to remit out of this transaction is significant,” said Lafarge in a statement.

Lafarge has informed the central bank that it is not possible to complete the merger with Holcim if the BB does not allow it to remit Tk 936 crore.

The BB decision has put pressure on the share price of Lafarge on the Dhaka Stock Exchange.

Each share of Lafarge Surma Cement, which was listed as a green field company in 2003, traded at Tk 65.40 on August 18, the day news broke of the BB's decision.

The share price started to fall from the very next day and it closed the day yesterday at Tk 61.50.

World's leading cement makers, France's Lafarge and Switzerland's Holcim, merged in July 2015 to form LafargeHolcim, which owns the majority stake in Holcim Bangladesh.

LafargeHolcim and Cementos Molins, a Spanish cement manufacturer, own through their joint venture with Surma Holding, a majority of the shares of Lafarge Surma Cement.

In November last year, the board of Lafarge Surma announced that it was exploring the opportunity of combining the businesses of Holcim Bangladesh and Lafarge Surma. The acquisition was approved by the board a month later.

Subsequently in January this year, Lafarge Surma Cement changed its name to LafargeHolcim Bangladesh Ltd.

Upon completion of the transaction, Lafarge will become a major player in the local cement market with an annual production capacity of 4.2 million tonnes, according to the company.