OREANDA-NEWS. Fitch Ratings has affirmed Switzerland-based building materials group Holcim Ltd's (Holcim) Long-term and Short-term Issuer Default Ratings (IDR) at 'BBB' and 'F2', respectively. The Outlook is Stable. A full list of rating actions is below.

The affirmation reflects Holcim's leading market positions as one of the world's largest cement producers and our expectation that its financial profile remains commensurate with its 'BBB' rating. We expect a recovery in global end-markets, particularly in developed markets, and the continued healthy, albeit slowing, growth in emerging markets to support internally generated cash flow. Coupled with a reduction in capex, we expect credit metrics to improve in line with our guidance for the ratings over the next 18 months.

KEY RATING DRIVERS
BBB Business Profile
Holcim's IDR reflects the company's strong market position in cement, aggregates and concrete, and its wide geographical diversification, with a balanced mix between developed and emerging markets. The intended merger between Holcim and Lafarge will create the world's largest building materials company. It will hold number one market positions in cement, aggregates and ready-mix products and benefit from the individual companies' complementary asset base in Latin America and Africa & Middle East.

Solid Operating Results
Operating margins in 2014 remained solid and the EBITDA margin was in excess of 20%, excluding restructuring and merger-related costs. The cost-cutting programme is well underway, with CHF1.8bn savings achieved over the past three years. However, leverage metrics deteriorated, due to a change in consolidation and currency fluctuations, resulting in net debt at year-end of CHF9.6bn (adjusted for EUR1bn of operating cash). Fitch expects credit metrics to improve in line with its guidance for the ratings over the next 18 months, thanks to a reduction in capex from CHF1.9bn in 2014 to CHF1.5bn.

Merger Progress
The group successfully passed major hurdles in its merger process with Lafarge, including the successful renegotiation of terms and announcement of a new CEO, EU regulatory approval and the announced EUR6.5bn asset sale to CRH in a single deal, reducing the inherent transaction risk. While shareholders still need to consent with a two-thirds majority at an extraordinary shareholder meeting on 8 May 2015, our base rating case reflects the completion of the merger mid-year, as the strategic and operational rationale remains intact.

Adjustments for Indian Subsidiaries
Holcim fully consolidates its Indian subsidiaries, ACC Limited and Ambuja Cements Ltd., of which it held 50.3% and 50.4% at end-2014, respectively. Fitch proportionally deconsolidates EBITDA and funds from operations (FFO) of Holcim's Indian entities, according to the interest Holcim owns in them.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Completion of the intended merger with Lafarge and asset sale to CRH in 2015.
- Low single digit revenue growth driven by slow global recovery.
- Margins broadly stable at around 20%.
- Sustainable expansion capex of CHF400m to CHF500m annually, maintenance capex of about CHF700m to CHF800m per annum.
- Dividend policy to remain consistent with previous years' approach.

RATING SENSITIVITIES
Positive: Future developments that could lead to positive rating actions include:
- Pro-rata FFO adjusted gross leverage improving to below 2.5x and net leverage to below 2.0x (4.2x and 3.8x at end-14).
- Pro-rata consolidated free cash flow (FCF) materially positive (CHF-170m in 2014).

All ratios are calculated by pro-rata consolidation of the Indian controlled subsidiaries.

Negative: Future developments that could lead to negative rating action include:
- EBIT margin below 10%, pro-rata consolidated for the Indian subsidiaries (12.1% in 2014).
- FFO adjusted gross leverage above 3.5x and net leverage above 3.0x, pro-rata consolidated for the Indian controlled subsidiaries.
- Pro-rata consolidated FCF remains negative.

All ratios are calculated by pro-rata consolidation of the Indian controlled subsidiaries

LIQUIDITY AND DEBT STRUCTURE
Successful Bond Issuances
In March 2015 Holcim placed a five-year MXN1.7bn bond under its Mexican Bond Programme and a five-year AUD250m bond under its Australian Bond Programme. Together with the MXN2.0bn bond issued under the same programme maturing in 2018 and the 10-year EUR500m bond issued in 2014, Holcim extended the average debt maturity to 5.2 years, with an average cost of financing at 4.7%. Capital market financing is now 75% of gross debt.

Strong Liquidity
Liquidity as at end-2014 is adequate with unused committed credit lines of CHF3.8bn. This compares with CHF1.9bn debt maturities in 2015. Around CHF1bn of cash and securities are held at local subsidiaries (mainly in India), which Fitch assumes are required to cover intra-year working capital swings and therefore considers not freely available.

FULL LIST OF RATING ACTIONS

The rating actions are as follows:

Holcim Ltd
Long-term IDR: affirmed at 'BBB'; Outlook Stable
Short-term IDR: affirmed at 'F2'
Senior unsecured debt: affirmed at 'BBB'

Holcim Capital Corporation Ltd.
Senior unsecured debt: affirmed at 'BBB'

Holcim Finance (Australia) Pty Ltd
Senior unsecured debt: affirmed at 'BBB'

Holcim Finance (Canada) Inc.
Senior unsecured debt: affirmed at 'BBB'

Holcim Finance (Luxembourg) S.A.
Senior unsecured debt: affirmed at 'BBB'

Holcim GB Finance Ltd.
Senior unsecured debt: affirmed at 'BBB'

Holcim Overseas Finance Ltd.
Senior unsecured debt: affirmed at 'BBB'

Aggregate Industries Holdings Limited (UK)
Senior unsecured debt: affirmed at 'BBB'.