Fitch Ratings has revised China Shanshui Cement Group Ltd's Outlook to Negative from Stable. Meanwhile, Shanshui's Long-Term Issuer Default Rating (IDR) and senior unsecured ratings have been affirmed at 'BB'.
The Outlook revision reflects Shanshui's slower-than-expected deleveraging process, mainly driven by weaker cash flow generation due to the lower cement average sell price (ASP). "We expect Shanshui to be able to sustain its financial leverage, measured by FFO adjusted net leverage ratio, below 4x only after 2015. Any further market deterioration or lack of discipline in capex and acquisitions could lead to its leverage remaining above 4x for a longer period," the rating's agency said in a statement. Shanshui's leverage at end-2013 was 5.0x, but the company has been reducing capex.
Key rating's drivers
Lower average selling price (ASP)
Cement ASP has been under pressure since the Chinese property market slowed down in 2014, Fitch notes. For the first half of 2014, Shanshui's cement ASP was CNY240.3/t (US$38.6), compared with CNY250.5/t during the same period in 2013. This was mainly due to a 9.9 per cent fall in ASP in northeastern China and a four per cent decline in ASP in Shanxi province, although ASP in Shandong province was stable at CNY240.6/t (1H13: CNY243.7/t). This steady ASP in Shandong, Shanshui's core market, supports its stable business profile.