West China Cement ratings upgrade

West China Cement ratings upgrade
Published: 25 March 2014


Moody's Investors Service has changed the outlook of the  B1 corporate family rating and B1 senior unsecured bond ratings of West China Cement from negative to stable. At the same time, the research house has affirmed both ratings.

"The change in outlook to stable reflects an improvement in WCC's debt leverage and a slowdown in its capital expenditure," said Jiming Zou, a Moody's Assistant Vice President and Analyst.

In addition, Moody's pointed out that the acquisitions made by WCC in 2012 contributed to an 18.3 per cent growth in revenue in 2013 to CNY4.17bn (US$672m).

In 2014, the company plans to reduce such spending even further, to CNY500m. The lower level of spending reflects the consolidation in market capacity in Shaanxi province, resulting in the need to reduce merger and acquisitions to stabilise cement prices and to avoid a further erosion of margins.

Moody's expects WCC's average selling price to improve slightly in 2014 from the CNY228/t achieved in 2013, due to an improvement in demand and supply balance in the region.

Its production volume is also likely to grow around 5-10 per cent from the 17.6Mt recorded in 2013, given the organic growth in demand growth for infrastructure, as well as rural and urban development.

The lack of new capacity coming on stream in Shaanxi province, WCC's home market, is also beneficial to the company's volume growth. As a result, WCC is expected to maintain debt/EBITDA of around 3x and EBITDA/interest of 4x; positioning the company in the B1 rating level.

"The stable ratings outlook also takes into account WCC's stabilising liquidity position," says Zou, who is also the Lead Analyst for WCC.

WCC's reduced spending resulted in an improved cash and deposit total of CNY623m at end-2013 from CNY518m at end-2012. The issuance of CNY800m in medium term notes in March 2013 also improved its debt maturity profile, such that its cash to short term debt improved materially to 75.8 per cent at end-2013 from 41.3 per cent a year ago.

WCC's B1 ratings continue to reflect its dominant market share of cement production in southeastern Shaanxi province. Moody's believes the company will benefit from good anticipated demand for infrastructure-related projects and rural urbanisation in its home market over the next 3-5 years.