Fitch rates West China Cement's proposed US$ notes as 'BB'

Fitch Ratings has assigned West China Cement's (WCC) proposed US dollar senior unsecured notes a rating of 'BB'. The proposed notes will be issued by WCC and guaranteed by WCC's existing subsidiaries, other than those organised under the laws of China.

WCC plans to use the proceeds of the proposed notes for refinancing and general corporate purposes, including potential investments.

Fitch highlights that WCC maintains a strong position in Shaanxi province, with a market share of around 25 per cent, the highest in the province. In particular, it has a dominant position in southern Shaanxi at around 75 per cent of the market share, and 30-40 per cent market share in central Shaanxi. "The company is prudent in choosing new markets, and targets regions where there is limited production capacity. For example, market share in Hetian, Xinjiang, was about 40 per cent at end-2020, and that in Mozambique was over 60 per cent."

Fitch expects WCC to increase capex in overseas market in the next few years because of restrictions on adding capacity in China. This overseas capex will facilitate the company's geographical diversification and drive business growth. Overall capex should peak in 2021 at around CNY4bn (US$619m), due to the overseas investment as well as the remaining work on the 5Mta replacement cement-production line in Shaanxi, before declining over 2022-23, the research house notes.

Fitch also expects WCC's diversification to continue to improve, with revenue from outside of Shaanxi increasing to 30-40 per cent of total cement revenue in 2021-22, from around 18 per cent in 2020, driven by acquisitions, including the Mozambique project and Paomashan project in Sichuan.