RAM Reaffirms A1P1 Ratings of Lafarge


6 July 2007


KUALA LUMPUR: Ratings Agency Malaysia (RAM) has reaffirmed the respective long- and short-term ratings of Lafarge Malayan Cement Berhad's ("LMCB" or "the Group") RM350 million Al-Murabahah Commercial Papers/Medium-Term Notes (2003/2010) ("CP/MTN"), at A1 and P1; the long-term rating has a stable outlook.


The reaffirmation of LMCB's ratings is premised on its credit strength, supported by the Group's business profile as the largest integrated cement player in Malaysia, possessing almost half of the entire industry's installed capacity.


LMCB is also able to leverage on Lafarge SA's international network to export cement, enabling high levels of capacity utilisation for its clinker production - around 90% for the past 3 years.


The ratings are also supported by the Group's sturdy financial profile, which had strengthened further in FY Dec 2006.


LMCB's gearing level eased to 0.14 times as at end-FYE Dec 31, 2006 ("FY Dec 2006"), from 0.20 times a year earlier.


However, the additional debt arising from its anticipated RM566.46 million capital repayment in 3Q 2007 is envisaged to weaken the Group's balance sheet.


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


On the other hand, RAM opines that LMCB's post-capital repayment financial position would leave little room for further leveraging without affecting its current ratings.


Meanwhile, the domestic cement industry is highly dependent on the local construction sector, its main end-user.


As such, the encouraging recovery of the construction sector, highlighted by its 4% year-on-year growth in 1Q2007 compared to a 0.5% contraction in 2006, augurs well for the Group's future prospects.


RAM believes that the Group's domestic sales volume will grow in tandem with the pick-up in the construction sector throughout the duration of the 9MP, bolstered by the hike in ceiling prices for cement in December 2006.  RAM also notes that the Government's recent decision to allow the review of cement prices every four months, under an automatic pricing mechanism effective Jan 1, 2008, should be positive for the cement industry. As details have yet to be firmed up at this juncture, however, RAM has not factored the potential upside into its analysis.