West China acquisition of Fuping Cement positive – Moody’s

Moody's commented that West China Cement's (WCC) acquisition of Fuping Cement is credit positive for WCC (Ba3, negative).

Fuping Cement owns a 2Mt cement production plant in Zhuangli town in Shaanxiand a 35% interest in Shifeng Cement which has a 2Mt plant in Caocun town, also in Shaanxi. WCC is also still completing the acquisition of a 65% interest in ShifengCement, which began in March 2012.

Moody's said the issuance of HK$620m worth of new shares to acquire capacity will enhance its equity base without cash outflow from WCC and hence is credit positive. With respect to the consolidation of the debt at Fuping Cement, the impact on WCC's debt leverage will be small.

The credit rating agency believes the acquisition of Fuping Cement will give WCC significant competitive advantages. By adding another 2Mt to its production capacity and taking over the entire stake in Shifeng, WCC will own and operate all New Suspension Preheater (NSP) dry-process cement production facilities in the Weinan region and become a clear market leader in Shaanxi province. This will strengthen its pricing power and help restore cement prices in the local markets.

In particular, the facilities of Fuping and Shifeng Cement are close to WCC's existing facilities. They will be integrated into the production and sales network of the group, create synergy and help improve profitability in the long term.