Announcements

GCR accords the Lafarge WAPCO Bond a strong AA- rating

GCR has accorded a national scale Naira currency long term rating of AA- (double A minus) to the N11.88bn Lafarge WAPCO (Nigeria) Limited Series 1 Bond. The Programme rating was derived by applying a notching up approach, starting from the long term corporate credit rating of Lafarge WAPCO of A (single A). Supported by the nature of the Security Package and the underlying transaction documentation, the degree of asset coverage implies high recovery prospects, allowing for the upnotching.

As the Programme Notes are issued directly from Lafarge WAPCO, the rating is intrinsically linked to the underlying financial performance of the Issuer and any change in the Issuer rating would necessarily impact the Programme rating. To this end, GCR positively considered Lafarge WAPCO’s long history of operations in the Nigerian cement industry, which has enabled it to establish a leading position.

Whilst revenue has remained relatively constant in recent years, profitability declined due to steep rises in energy and other input costs. This spurred the company to undertake a major capacity expansion to benefit from the strong cement demand in the Nigerian economy. The project will see cement production capacity more than double to 4.2mtpa, as well as address the power constraints through the construction of a captive power plant. Although the project initially experienced some delays and substantial costs overruns, the plants are largely complete and have begun operations, with full capacity expected to be reached by the end of 2012.

The substantial financing requirement for the project’s EUR448m price tag has seen Lafarge WAPCO’s gearing increase significantly. Gross debt is projected to peak at N57.6bn at FYE11, with net gearing and net debt to EBITDA forecast at 88% and 276% respectively. Gearing is projected to decrease steadily from F12.

Once in operation, the cement plant will likely generate robust returns for the company, as forecast in the financial projections. Nevertheless, risks associated with the general teething problems affecting large industrial projects might mean the commissioning of the new capacity is not achieved on time. As gearing levels are projected to remain high over the first three years, this could have an adverse affect on gearing ratios and credit protection measures.

Eyal Shevel
https://globalratings.net/uploads/files/November_2011.pdf

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