Fitch lowers West China outlook

Fitch lowers West China outlook
Published: 29 November 2011

Fitch lowered on Friday to "negative" from "stable" the outlook on Chinese cement manufacturer West China Cement Ltd (WCC), while affirming its long-term foreign currency issuer default rating (IDR) and senior unsecured debt at BB.

The outlook revision has been triggered by the ongoing price war in Shaanxi province kindled by decreasing demand and growing raw material prices, which has eroded WCC’s margins, Fitch explained.

Furthermore, the company embarked on an aggressive capacity expansion in Xinjiang and Shaanxi this year, which will push leverage, as measured by net debt/EBITDAR, to over 2x at end-2011, according to the analysts.

However, Fitch expects that market conditions will rebound by mid-2012, with the scale and sustainability of this improvement and WCC’s policy to scale back capital expenditures to be key factors for determining whether further negative actions are likely.