Two years after what Kansai said was “a happy ending to a hostile takeover” involving the acquisition of South Africa’s Freeworld Coatings, the Japanese coatings giant has made yet another huge leap by acquiring a 63.25 percent interest in Zimbabwe’s coatings market leader Astra Industries. The Japanese coatings firm partnered with the management and staff of Astra, which also has substantial interest in the chemicals market, to buy the stake from the Finance Trust of Zimbabwe, an investment arm of Reserve Bank of Zimbabwe.
“Part of our strategy was to use Kansai Plascon in South Africa as our platform growth into the rest of the African continent and we are happy to say that the acquisition of Astra is the first step in making this a reality and demonstrate our commitment that we made at that time,” said Nauman Malik, Kansai Plascon CEO. Kansai Plascon is the company formerly known as Plascon South Africa and was renamed after its merger with Japanese company Kansai Paint.
Malik said Kansai, which announced net sales of $3,127 million for the financial year ending March 2013 – an equivalent of 14.6 percent year-on-year increase – has “confidence in the in the economy of Zimbabwe and Africa in general and believe Astra Industries is the right company to partner with.”
Kansai seems to have taken the adverse publicity on the performance of Zimbabwe’s economy on its stride and also appear to have ignored queries on why the Reserve Bank of Zimbabwe has been disposing of even some of its well performing assets.
The African Development Bank said Zimbabwe’s economic growth decelerated from 10.6 percent in 2011 to 4.4 percent in 2012, “reflecting a fragile recovery owing largely to inherent political and economic uncertainties, a high debt overhang and the deteriorating infrastructure.”
“Key challenging factors to doing business includes policy instability, lack of funding, corruption, excessive or poorly functioning government bureaucracy and inadequate infrastructure.”
However, the bank said in the country’s economic outlook for 2013 Zimbabwe’s real gross domestic product (GDP) growth “is projected to improve marginally to five percent in 2013. The projected improvement in 2013 will be underpinned by improvements in mining and agriculture.”
“The economy continues to experience structural challenges emanating from the limited sources and high cost of capital; uncertainties arising from policy inconsistencies, especially with respect to economic empowerment and indigenization regulations; dilapidated infrastructure and obsolete technologies.”
Despite these challenges, Kansai said the fact that Astra Industries is a market leader in Zimbabwe, has a sound management and history of success, the buyout is a worth investment risk and will benefit from expertise and technology from its South Africa’s operations.
“The timing may be subject to controversy but we don’t want to wait at the risk of the company partnering with someone else,” said Malik.
The entry into the Zimbabwe market tightens further the grip Kansai holds in the Southern Africa market with a major presence in Namibia, Zambia and Malawi.
Despite the apprehension with which its entry into South Africa was received in 2011, Kansai Paint, now trading as Kansai Plascon in the country, is sending a precedent of sorts in the region’s coatings industry.
“Not only are we setting a precedent in the coatings industry, but we are also setting the precedent in the South Africa economic environment,” said Malik previously terming the Kansai Paint and Freeworld acquisition story “a hostile takeover and a happy ending.”
Kansai Paint president and representative director Hiroshi Ishino said the company’s South Africa subsidiary, contributed greatly to the consolidated operating income of $257 million and the 189 million net income for the financial year ending March 2013.
“The revenue of the Kansai Paint Group increased due to the additional contribution of our South Africa subsidiary, which was consolidated during the previous fiscal term,” said Ishino.
The Zimbabwe buyout is part of Kansai’s accelerated globalization and which Ishino said “focuses on developing nations where the prospects for growth are most positive.”
“Our overseas business will look to strengthen competitiveness by optimizing costs and product quality to meet the needs of the market,” he said.
“We will also increase the pace in which we enter and develop businesses in new territories and fields as well as areas that can make a significant contribution to our consolidated business performance.”
And in line with its strategic accelerated global expansion, Kansai Paint has hinted at a planned acquisition of a Kenyan coatings firm as it eyes the growing Eastern Africa market.
Hiroshi Ishino, who was in Nairobi recently, told reporters: “Kenya is a crucial part of our business agenda in the region. We are open to all avenues to enter the market, but we are also ready for a buyout.”
Although he did not confirm the Nairobi coatings company that Kansai Paint is eyeing, focus has now shifted to leading paint makers of Crown Paints, Basco Paints and Sadolin Paints.
The Nairobi-based paint manufacturers fit Ishino’s description of the kind of company that would want to acquire stake. He was quoted saying Kansai ruled out beginning operations in Eastern Africa from scratch involving processes such as “buying land, putting up buildings, hiring local staff and fighting for market share against the established rivals.”
Kansai hopes to bank on the property boom currently enjoyed in East Africa and specifically in Kenya to achieve its growth targets after sealing a buyout deal in the region.
Analysts say growth in real estate sector opens opportunities for paint makers and cement makers in the region to grow their bottom lines.
“The number of multinationals and NGOs that have either set up their operations or plan to relocate there, in addition to fast-growing domestic Kenyan businesses, have ensured that Nairobi continues to attract investments into the commercial office sector,” says Michael Turner, managing director, Actis East Africa, a private equity firm investing exclusively in Africa.
“In East Africa and in Kenya specifically, the property market is responding to demand that has been created by the expanding middle class with disposable income and able to service their mortgages”
Kansai’s appetite for the East Africa coatings market comes at a time when leading paint manufacturer in the region, Crown Paints Kenya Limited has announced a new partnership with the world’s largest manufacturer of decorative plaster, Armourcoat.
Crown Paints CEO Rakesh Rao said the company is keen on growing its premium segment and will introduce a new product, Crown Armourcoat, in the local market.
“We are seeing in the market an increasing shift to high-end finishes to lend a superior feel to interior living spaces. Consumers especially in the middle and upper income segments are also looking beyond traditional coating solutions like paint to achieve a strong aesthetic appeal in their homes and offices,” said Rao
Armourcoat launched in Kenya in mid-October and appointed Crown Paints Kenya it agent for Kenya, Uganda, Tanzania, Mozambique, Rwanda and Burundi.
Armourcoat creative director Duncan MacKellar sealed the deal with Crown Paints’s Rao and held several meetings with the application and sales teams to map out a winning formula for the new product.
The acquisitions and partnerships in Africa coatings market in 2013 were pioneered by Netherlands-based chemical firm IMCD Group BV’s acquisition of 100 percent interest in South Africa’s Chemical Distributor Chemimpo South Africa (Pty) Ltd.
IMCD Group BV describes itself as one of the world’s “leading company in sales, marketing and distribution of specialty chemicals and food ingredients” with a footing in Europe, Asia-Pacific and Africa.
“Integration of the two companies in South Africa will take place through the course of 2013 and will establish IMCD South Africa as the leading specialty chemical company in Sub-Saharan Africa,” said Piet van der Slikke, CEO of Rotterdam-based IMCD.
Otto Brinkmann, who is manager of the Johannesburg based-Chemimpo South Africa (Pty) Ltd. and will spearhead the combined operations, said the company management hopes the “change as it significantly increases our customer base, laboratory presence and sales personnel, delivering exhaustive market penetration.”