Tecnoglass Inc. entered into a joint venture agreement with Saint-Gobain, through the planned purchase of a minority ownership interest in Vidrio Andino, a Colombia-based subsidiary of Saint-Gobain with annualized sales of approximately $100 million. The transaction is expected to be completed in the second quarter of 2019.
“We are excited to partner with Saint-Gobain and to develop one of the most advanced and efficient glass production facilities in the world near our own plant network,” says José Manuel Daes, chief executive officer of Tecnoglass. “This investment reinforces our vertical integration strategy and positions Tecnoglass to capture benefits from nearly the entire value chain of our high-quality architectural glass production. The joint venture secures our float glass supply and will generate significant synergies for years to come.”
Vidrio Andino has been selling glass in Colombia and the region since 1997 and began production at its manufacturing facility located near Bogotá, Colombia, in 2013, becoming the main supplier of float glass to Tecnoglass since that time. The joint venture will significantly augment Tecnoglass’ vertical integration strategy by allowing it to acquire an ownership interest in one of the first stages of its production supply chain, guaranteeing stable long-term float glass supply and improving purchasing economics for a significant portion of its float glass sourcing over time.
“Over the past several years, Vidrio Andino has built a powerful brand and a trusted reputation for excellence as a glass supplier of choice in Latin America,” says Xavier Pinot, general manager of Vidrio Andino. “By combining Saint-Gobain ... with Tecnoglass’ proven high quality manufacturing acumen, Vidrio Andino will be able to accelerate its penetration in the region.”
Vidrio Andino also plans to build a new state-of-the-art, technologically-advanced glass manufacturing facility in Galapa—nearby Barranquilla—which is located approximately 12 miles from Tecnoglass’ existing production facilities. The new facility will have nominal production capacity of approximately about 827 tons per day of float glass. Upon the expected completion of the new Galapa facility in 2021, Tecnoglass will benefit from the following factors:
- access to float glass supply for anticipated growth, with Vidrio Andino more than doubling its float glass production nominal capacity
- reduced purchasing costs through expanded scale in its float glass procurement, elimination of raw material waste, and lower inbound transportation costs given Galapa’s closer proximity to Barranquilla
- control of nearly its entire production process, driving increased efficiency to provide enhanced service and improved lead times to customers
The company’s investment for the minority interest in Vidrio Andino is approximately $45 million, which is expected to be funded with cash of approximately $34 million plus land contributed at an aggregate value of approximately $11 million. Tecnoglass intends to fund the cash portion of the transaction with cash on its balance sheet and readily available lines of credit, while maintaining a pro forma net leverage position in line with recent quarters.
The initial $45 million investment into the joint venture from Tecnoglass will be used to fund a portion of the construction cost for the new manufacturing facility near Barranquilla, which is expected to total approximately $160 million through 2022. The remainder of the construction cost is expected to be funded primarily through operating cash flow from the existing manufacturing facility in Bogota, debt borrowed at the joint venture level and pro-rata capital contributions from the shareholders over the multi-year construction period.