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Announcement:

Moody's sees no immediate concerns for West China Cement from short seller's report

 The document has been translated in other languages

Global Credit Research - 10 Aug 2012

Hong Kong, August 10, 2012 -- On 9 August 2012, West China Cement (WCC) addressed allegations from a short seller, the Glaucus Research Group. The allegations suggest irregularities in the company's business operations, acquisitions and financing. Following its provision of the information, trading in WCC stock resumed on the Hong Kong Stock Exchange. Moody's believes that WCC's response has adequately addressed the concerns raised by Glaucus. Therefore, there is no pressure on its Ba3 corporate family and senior unsecured debt ratings.

At the same time, the rating outlook remains negative, reflecting the consideration that its credit metrics, especially interest coverage, are under pressure from its fast expansion and weak cement prices.

Furthermore, WCC's Ba3 rating is based on its top-tier position and defensible market share in southeastern Shaanxi, protected by a mountainous barrier and solid demand from infrastructure-related projects and urbanization.

The ratings also consider the company's track record of profit growth, which is well above the industry average due to its incumbent market leadership and established local business networks.

At the same time, WCC's ratings are constrained by its exposure to the regional economy of Shaanxi, volatile raw material costs, and tightening government regulations for the cement industry in China.

In particular, WCC faces the challenge of rising price pressure and lower profitability due to industry overcapacity, against the backdrop of a government-directed slowdown and postponement of infrastructure investments in the near term.

WCC's ratings are also tempered by its fast acquisitive growth and high capital expenditure for new facilities, which have consumed a large amount of operating cash flow. In addition, WCC faces execution risks regarding its acquisition and construction of facilities outside its home market, such as in the Xinjiang region.

Moody's will monitor WCC's operating performance and any evidence of the deficiencies alleged by Glaucus.

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 of China. As of end-2011, the company's production capacity had reached 16.2 million tons per annum. Most of the company's plants are in southern Shaanxi Province where it has a dominant market share. The company is 40.9% owned by its chairman, Mr. Zhang Jimin. It was listed on the Hong Kong Stock Exchange in August 2010.

Jiming Zou
Analyst
Corporate Finance Group
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

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

Moody's sees no immediate concerns for West China Cement from short seller's report
No Related Data.

 

© 2013 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

 


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