China: Fitch Ratings believes West China Cement Limited’s (WCC, BB-, Rating Watch Positive) weaker operations – as reflected in the 2015 results – is outweighed by its pending takeover by Anhui Conch Cement Company Limited (Conch, A-/Stable). The Rating Watch Positive on WCC is driven by the potential further integration between Conch and WCC, which will be resolved once the transaction is completed. WCC’s performance in 2015 was a reflection of the weak cement market throughout the year. Its EBITDA margin narrowed to 26.6 per cent in 2015 from 27.8 per cent in 2014, caused by a lower average selling price (ASP) and production volume, which have declined by 9 per cent and 3 per cent to CNY200/tonne and 17 million tonnes, respectively. The ASP of Shaanxi province-wide cement declined by 8 per cent and production volume was down by 4 per cent. WCC’s market share in Shaanxi has remained unchanged. Fitch expects WCC’s ASP and volume to remain flat in 2016 due to the market weakness, but for the EBITDA margin to improve slightly due to cost-synergies deriving from the integration with Conch. Conch announced in December 2015 that it would increase its ownership to 51.6 per cent by injecting four of its plants in Shaanxi into WCC. Once the acquisition is complete, Conch will have to make a mandatory unconditional cash offer for the remaining WCC shares. The acquisition was approved by the shareholders in January 2016, but still pending regulatory approval.
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