RAM Reaffirms ratings on Lafarge Malayan cement debt facility

RAM Reaffirms ratings on Lafarge Malayan cement debt facility
Published: 13 April 2011

RAM Ratings Bhd (RAM) has reaffirmed the respective long-term and short-term ratings of Lafarge Malayan Cement Bhd’s (LMCB) MYR350m (US$115.7m) Islamic Securities Programme (2010/2017), at AA2 and P1.

In a statement Wednesday, RAM said the long-term rating has a stable outlook.

"The reaffirmation of the ratings is premised on LMCB’s strong business profile as the largest integrated cement player in Malaysia, where the group owns four cement plants and possesses almost half of the industry’s installed capacity," it added.

RAM said the availability of physical infrastructure as well as access to a global distribution network provides LMCB with the flexibility to shift excess production to a larger market overseas.

It said LMCB remains exposed to a volatile thermal coal process as well as the cyclicality of the construction and property sectors.

Price undercutting, which had occurred in the past, has been less of an issue in recent times due to a more concentrated sector with fewer manufacturers.

"The structural change in the cement industry has also resulted in the ability to pass on a large part of higher production costs to consumers," it said.

Meanwhile, RAM’s Head of Real Estate and Construction Ratings, Shahina Azura Halip said in the medium term, demand for cement is expected to be supported by fiscal spending on the construction sector, generated by projects under Budget 2011, the 10th Malaysia Plan and the Economic Transformation Programme (ETP).