Lafarge's Proposed Capital Repayment No Immediate Impact on Ratings


16 February 2007


RAM statement on Feb 16


RAM opines that Lafarge Malayan Cement Berhad's (Lafarge) proposed up to RM566.46 million capital repayment has no immediate impact on the A1/P1 ratings of the Company's RM350 million Al-Murabahah Commercial Papers/Medium-Term Notes (2003/2010) (CP/MTN). In addition, the outlook on the long-term rating remains stable.


Despite the anticipated weakening of Lafarge's balance sheet and debt-protection measures, RAM opines that they would still be within levels which commensurate with the A1/P1 ratings.


However, RAM opines that La Farge's financial position following the capital repayment would leave little room for further leverage without affecting the current ratings.


Despite its weakening financial position, RAM takes comfort in Lafarge's favourable business prospects as it is expected to be a direct beneficiary of the ongoing implementation of the 9th Malaysia Plan Furthermore, the Government-approved 10% increase in the ceiling price for cement would provide earnings upside for Lafarge in the coming year.


Assuming that the entire RM566.46 million capital repayment to its shareholders is funded by additional borrowings, Lafarge's debt load would escalate to around RM1 billion (as at end-September 2006: RM445 million), resulting in a net gearing ratio of 0.37 times (as at end-September 2006: 0.12 times).


Concurrently, its debt-protection measures, as reflected by its operating cashflow debt cover ratio, would drop from 0.53 times to 0.34 times.


On 30 January 2007, Lafarge announced a proposed capital repayment to its shareholders via a cash distribution of RM566.46 million, on the basis of RM0.20 for every existing ordinary Lafarge share of RM0.50 each.


Subsequently, the entire issued and paid-up capital of Lafarge will be consolidated into ordinary shares of RM1.00 each.