13.11.2012 04:09
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West China Cement Limited -- Moody's downgrades West China Cement to B1; outlook negative

Hong Kong, November 13, 2012 -- Moody's Investors Service has downgraded the corporate family and senior unsecured bond ratings of West China Cement Limited (WCC) to B1 from Ba3.

The ratings outlook is negative.

These actions conclude the ratings review that commenced on 22 August 2012, following the announcement of WCC's 1H 2012 results.

RATINGS RATIONALE

"The ratings downgrade reflects WCC's weakened liquidity and financial profiles, owing to its fast business expansion and a more competitive pricing in the market," says Jiming Zou, a Moody's Analyst.

WCC's fast expansion has weakened its liquidity profile -- its cash balance declined to RMB174 million as of June 2012 from RMB566 million as of December 2011 and short-term debt doubled to RMB1.25 billion in the same period. Such a low level of cash balance cannot support its current business plan.

The company's plan to increase its capacity to 30 million tonnes per annum by 2015 will utilize all of its operating cash flows and increase its debt leverage. In addition, with the expansion, WCC will venture into new regions -- including Xinjiang-- where it doesn't have the similar competitive edge as in its core market of Shaanxi.

"At the same time, cement demand and prices have not recovered as meaningfully as originally expected, because of overcapacity and subdued investment spending in Shaanxi," Zou says.

WCC's averaging selling price has recently stabilized at RMB240-245 per ton, which is slightly up from RMB235 per ton in 1H 2012, but remains low compared with RMB289 per ton in 1H 2011. Moody's expects cement prices to linger at the current level over the next 12 months.

The lower cement prices in Shaanxi province have pressured its operating margin. Moody's expects WCC's operating margin to remain below 20%, compared to 25.9% in 2011.

In this context, the company's weak projected credit metrics -- adjusted debt/EBITDA of around 4.0x-4.5x and EBITDA/interest of around 3.5x-4.0x in the next two years -- more appropriately position it in the B1 category.

The B1 rating also reflects the company's top-tier position in southeastern Shaanxi, which benefits from long-term demand from infrastructure-related projects and urbanization.

The rating also considers the company's track record of profit growth, which is well above the national industry average, due to its market leadership and extensive local business networks.

The negative rating outlook reflects WCC's weak liquidity and financial profiles, because of challenging market conditions, and the execution and financial risks associated with its ambitious plans to grow capacity outside Shaanxi province.

The rating outlook could return to stable, if WCC can demonstrate: (1) more disciplined financial management, characterized by reduced capital spending and larger financial buffers; (2) improved liquidity, such that cash balance covers around 30%-40% of short-term debt payments; and (3) improved profitability, highlighted by operating margins of around 20%.

The ratings could be further downgraded if there is: (1) a material loss in WCC's market share; (2) further deterioration in the pricing environment that erodes its profitability; (3) continued aggressive spending, such that EBITDA/interest expense falls below 3.0x and a debt/EBITDA ratio exceeds 5.0x.

The principal methodology used in rating West China Cement Limited was the Global Building Materials Industry Methodology published in July 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

West China Cement is one of the leading cement producers in Shaanxi province. As of end-2011, the company's production capacity had reached 16.2 million tons per annum. Most of its plants are in southern Shaanxi, where it has a dominant market share.

In addition, it is setting up a footprint in the Xinjiang Autonomous Region, as evidenced by the acquisition of a production facility in Hetian in May 2011 and the construction of another cement plant in Yutian.

The company is 38.53% owned by its chairman, Mr. Zhang Jimin. It was listed on the Hong Kong Stock Exchange in August 2010.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

Information sources used to prepare the rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

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Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Jiming Zou Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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23.09.2009West China Cem. kein Stück aus der Hand gebenEmerging Markets Investor
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