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Investing.com -- Moody’s Ratings has lowered the ratings of West China Cement Limited (WCC) and maintained a negative outlook. The corporate family rating (CFR) of WCC was downgraded to Caa1 from B3, and its senior unsecured ratings were dropped to Caa2 from Caa1 on April 1, 2025.
The downgrade and negative outlook were given in response to WCC’s weak liquidity and lack of progress in refinancing their upcoming $600 million bond, which will mature in July 2026. This was stated by Moody’s Ratings Vice President and Senior Analyst, Roy Zhang, who is also the lead analyst for WCC.
While WCC is considering several options to repay or refinance the $600 million bond, there is significant uncertainty about its ability to fully repay the obligation on time.
The Caa1 CFR of WCC reflects the company’s high refinancing risk and weak liquidity amid increasing maturities over the next 12-18 months. Other factors include its exposure to industry cyclicality, limited operation scale and product diversification, large investment requirements and high execution risks related to overseas expansion projects. The company’s aggressive financial policy, indicated by its high reliance on short-term financing, also played a part in the downgrade, despite its moderate debt leverage.
WCC plans to use internal cash resources primarily to repay the $600 million bond due in July 2026. A large part of this cash flow will come from the company’s overseas operations. The company’s adjusted EBITDA is expected to grow to about RMB4 billion by 2025, up from RMB2.7 billion in 2024, driven by increased production volume from new overseas plants.
However, the company’s ability to repay the $600 million bond with internal funds is negatively affected by the unclear repatriation of a substantial amount of overseas funds to the holding company in the upcoming months.
WCC also has significant investment needs for overseas market expansion. As of December 31, 2024, capital commitments amounted to around RMB3.7 billion, expected to be used mostly for the construction of new production facilities in Africa. Although the company can partly fund these commitments from available banking facilities, the large investment commitments will strain the internal funds available for debt repayment.
WCC’s liquidity remains weak, with its unrestricted cash to short-term debt ratio at a low 30% as of December 2024. The company’s cash and cash-like sources, together with its operating cash flow, are estimated to be insufficient to cover its short-term debts, dividend payout, and capital expenditure over the next 12-18 months.
The Caa2 senior unsecured bond rating is one notch lower than it would otherwise be due to structural subordination risk. This risk reflects the fact that most of WCC’s claims are at its operating subsidiaries, which have priority over the senior unsecured claims at the holding company in a bankruptcy scenario.
Environmental, social and governance (ESG) considerations negatively impact WCC’s ratings. The company’s exposure to environmental and social risks, including carbon transition, natural capital, waste and pollution risks, is in line with those of rated cement producers. The company also demonstrates a high risk appetite despite increasing maturities and execution risks related to its fast expansion in Africa. It has maintained an aggressive financial policy with high reliance on short-term financing.
The ratings could be downgraded further if WCC defaults on its debt repayment. However, positive rating momentum could occur if the company makes substantial progress in debt repayment or debt refinancing, despite the negative outlook.
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