RAM Ratings reaffirms AA2/P1 ratings of Lafarge Malayan Cement’s Islamic debt facility

Published on 31 May 2012

RAM Ratings has reaffirmed the respective long- and short-term ratings of Lafarge Malayan Cement Berhad’s (LMCB or the Group) RM350 million Islamic Securities Programme (2010/2017), at AA2 and P1; the long-term rating has a stable outlook.

The reaffirmation of the ratings is premised on LMCB’s strong business profile as the largest integrated cement player in Malaysia; the Group owns 4 cement plants and possesses almost half of the industry’s installed capacity. The availability of physical infrastructure as well as access to a global distribution network, via its parent, further provides LMCB with the flexibility to shift excess production to a larger market overseas. LMCB’s parent, Lafarge S.A., is the world’s largest cement producer. The Group’s financial profile remains superior as at end-2011, underlined by a conservative gearing ratio of less than 0.1 times and a superior funds from operations debt coverage ratio of 3.95 times. Its operating profit before depreciation, interest and tax margin continue to be healthy at above 20% for the same period.

LMCB remains exposed to volatile thermal coal prices as well as the cyclicality of the construction and property sectors. Price undercutting, which had occurred in the past, has been of a lesser issue in recent times. This said, RAM Ratings notes that the additional capacities that will be coming on-stream may pressure prices should there be insufficient demand. In the medium-term, demand for cement is expected to be supported by fiscal spending on the construction sector, generated by projects under Budget 2011, the Tenth Malaysia Plan and the Economic Transformation Programme.

Media contact
Yean Ni Ven
(603) 7628 1172
niven@ram.com.my