Fitch affirms Holcim at 'BBB+' on ACL acquisition

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Fitch affirms Holcim at 'BBB+' on ACL acquisition

Fitch affirms Holcim at 'BBB+' on ACL acquisition

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Fitch Ratings has today affirmed Swiss building materials company Holcim Ltd 's ("Holcim") Long-term Issuer Default ("IDR") and senior unsecured ratings at 'BBB+' and Short-term IDR at 'F2'. The Outlook for the Long-term IDR is Stable. At the same time Fitch has affirmed subsidiary Aggregate Industries plc's ("AI") senior unsecured 'BBB+' rating. This rating action follows the  announcement that Holcim will acquire an additional stake in India-based cement manufacturer Ambuja Cements Ltd ("ACL"), a leading cement supplier.

Holcim announced today that it intends to acquire from the founding families a 3.9% stake in ACL (formerly Gujarat Ambuja Cements Ltd, rated 'AAA(ind)', Stable Outlook) for an approximate total of USD220m. With this acquisition Holcim will raise its participation in ACL to 36.2%. With this purchase, Holcim is obliged to make a public offer under the Indian takeover code. Therefore Holcim will launch a public takeover offer for an additional 20% of the share capital, resulting in a potential additional outflow of USD1.12bn, to be concluded by the end of November 2007. Holcim intends to finance the acquisition through internal resources and existing credit facilities.

Fitch notes that the outcome of the public offer is uncertain at this stage. However, the agency estimates, that in case of full acceptance, net debt/EBITDA could increase to over 2.3x, the maximum level that Fitch deems appropriate for the current rating. In this event, a failure to restore it within the stated parameter within an 18 months period might result in negative rating pressure.

The ratings continue to reflect Holcim's strong market positions in its cement, aggregates and concrete and complementary product portfolio. They also consider its superior geographical diversification and high penetration in emerging markets, the latter of which offers more dynamic growth and higher margins than mature markets. In addition, the ratings take into account its strong cash flow generation and above-sector average operating EBITDAR margins.

In H107 Holcim delivered a good set of financial results, with sales and operating EBITDA up 9.3% and 12.5% on a like-for-like basis, respectively. Cost pressure from increasing energy prices was generally offset by price adjustments and operating EBITDA margin increased to 25.6% in H107 from 25% at H106. Net debt levels were only slightly higher at CHF13.3bn (FYE06: CHF12.8bn).

Holcim is one of the world's leading suppliers of cement, aggregates and concrete, with sales of nearly CHF24bn and a cement capacity of over 190 million tons in FY06. 

Sourced From: Fitch Ratings India Pvt Ltd