Standard and Poor’s (S&P) has downgraded its credit rating on Lafarge to junk bond status.
The agency slashed to BB+/B from BBB-/A-3 its long- and short-term corporate credit ratings on Lafarge.
At the same time, S&P cut to BB+ from BBB- the senior unsecured notes rating on the company.
The agency explained its rating action with the fact that Lafarge’s cash flow is rather weak. At end-2010, it represented only 15% of the group’s net debt, whereas S&P requires at least 20% so that the company’s rating may remain in investment category.
Lafarge’s debt rose after 2007 when the company bought Egyptian peer Orascom for EUR 8.8bn (US$12.4bn). Lafarge’s debt surged to EUR16.9bn in 2008 from EUR 8.7bn in the previous year.
In 2010, the debt was reduced to EUR14bn but it still remains high.