Moody's reviews West China Cement's B1 ratings

Moody's reviews West China Cement's B1 ratings
Published: 22 June 2015

Moody's Investors Service has put West China Cement Limited (WCC) B1 corporate family and senior unsecured debt ratings under review for upgrade.

On 19 June 2015, WCC announced that Conch International Holdings (HK) Ltd (unrated) – a wholly owned subsidiary of Anhui Conch Cement Co, Ltd. (unrated) -- would subscribe to shares equivalent to a 16.67 per cent equity stake in WCC.

The subscription proceeds of about HKD1.5bn would be used for general working capital and for potential acquisitions and/or other investment opportunities.

The completion of the share subscription is conditional upon (1) no material breach of any representation, warranty or undertaking by the company pursuant to the subscription agreement; and (2) the Hong Kong Stock Exchange granting a listing of and permission to deal in the subscription shares on the stock exchange.

"WCC will improve its cash balance and equity positions once the proposed share subscription by Conch Cement goes through," said Franco Leung, a Moody's Vice President and Senior Analyst.
WCC will benefit from tangible improvements; by 1.4x in its cash position and by 24 per cent in equity - from their levels as of end-2014.

"Furthermore, Conch Cement's state-owned enterprise status could help WCC enhance its access to financing channels, further improving its liquidity profile," says Jiming Zou, a Moody's Assistant Vice President and Local Analyst for WCC.

Moody's points out that Conch Cement is the third-largest producer in Shaanxi Province based on total production capacity. If the equity subscription goes through, WCC will have a better gauge of market supply and prices.

In addition, the subsequent change in ownership by WCC's founder, Mr Zhang, from 38.9 per cent to 32.4 per cent will not trigger a change of control, as the minimum holding required is 25 per cent.

Moody's will review the impact of the equity subscription on (1) WCC's business strategy; (2) the composition of WCC's board of directors and Conch Cement's participation; (3) WCC's financial policy; and (4) the business relationship and cooperation between WCC and Conch Cement and subsequent benefits.