TEXT-Fitch:No impact on Lafarge's ratings from US assets disposal

Thu Sep 27, 2012 9:29am EDT

Sept 27 - Fitch Ratings says that Lafarge SA's ('BB+'/Stable) announced disposal of some US assets is positive news, but neutral for its rating.

Lafarge has announced the disposal to Eagle Materials Inc. of some assets in the US for a total USD446m. The assets to be sold include two cement plants, for a total 1.6m tons capacity, with the associate cement terminals and the aggregates and ready-mix concrete operations in Kansas City. The transaction is subject to regulatory approval.

Fitch considers the transaction as a positive step in the realisation of Lafarge's disposal plan, which targets EUR1.0bn of assets sales in 2012. Including the current deal, Lafarge will have disposed of EUR420m of assets during this year. The completion of this plan is crucial for Lafarge's credit metrics to improve to a level in line with the current rating level and with Fitch's expectations. Thus, the agency would consider any delay in this process as a negative rating factor.

The outlook for the cement sector remains difficult, despite H112 results showed some signed of improvement. Lafarge's EBITDA margin benefited from higher prices in many regions (including North America, Asia and Middle East) and by eased inflation for energy costs. However, demand remains weak in Europe, while in North America, H112 volume growth was driven by very favourable weather conditions and will not be repeated in H212. In such a challenging context, Lafarge needs to cut operating costs and reduce capex to boost cash flows. Fitch expects these measures, together with asset disposal, to allow Lafarge's debt to reduce significantly, with funds from operation net leverage improving to below 4.0x in 2012 from 4.9x in 2011.