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Investing.com -- On Monday, Fitch Ratings upgraded the Long Term Issuer Default Ratings (IDR) of Holcim Ltd (OTC:HCMLY) to 'BBB+' from 'BBB'. The Short-Term IDR was affirmed at 'F2', and both ratings were removed from Rating Watch Positive (RWP). The outlook for the Long-Term IDR is stable.
The upgrade comes in the wake of Holcim (SIX:HOLN)'s proposed spin-off of its North American business, Amrize. Fitch's revised view on Holcim's credit profile reflects expectations of a strong financial profile of the company post spin-off. The company is expected to maintain EBITDA net leverage of 1.3x-1.6x and free cash flow (FCF) margins of 4%-5% from 2025 to 2028. Fitch also notes Holcim's sustained business profile, with strong geographic diversification and market position despite the divestment of Amrize.
The stable outlook indicates that Fitch expects Holcim to maintain a conservative capital structure and financial policy. The company is also expected to improve its product diversification through its building solutions division.
Due to the reorganization, Fitch has withdrawn the 'BBB+' senior unsecured rating of Holcim Finance US LLC, which will become the finance company of Amrize post spin-off.
Fitch expects Holcim to maintain prudent financial discipline, with EBITDA net leverage of 1.3x-1.6x for 2025-2028. The group's new stated leverage target (post spin-off) of 1.5x is deemed achievable. Holcim's reduced geographical diversification from the demerger of the North American business will be mitigated by an increased focus on investments in expanding its presence in the remaining regions and increasing product diversification.
Fitch forecasts Holcim's FCF margins to remain around 4%-5% during 2025-2028, above the previous positive rating sensitivity of 3%. This is based on Fitch's expectations of increased revenue from high-margin operations in Latin America and the solutions and products division, which requires less capital.
Fitch expects low single-digit like-for-like (LFL) organic revenue growth and slightly lower operating margins for Holcim after the spin-off. However, this will be mitigated by Holcim's high exposure to the government-funded infrastructure sector and increasing exposure to resilient renovation end-markets.
Fitch expects Holcim's active acquisition strategy to continue in 2025-2028, with an increased focus on non-cement businesses and bolt-on and selective medium-sized acquisitions. Fitch assumes total net acquisitions of about CHF3.3 billion across 2025-2028, supported by its strong liquidity and positive FCF margins.
Fitch expects the spin-off of Amrize to be completed in 2025. Revenue is expected to grow 6.8% in 2025 on LFL basis and 6%-9% during 2025-2028, primarily led by new M&As. EBITDA margin is projected at around 22% in 2025 and 2026 and then 20%-21% in 2027-2028 due to an increase in the product mix of lower-margin building solutions products.
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