Thursday 22 February 2018

$5bn of CRH's debt placed on negative ratings outlook

Moody's adjustment delivers another blow to the global construction giant

John Mulligan

Ratings agency Moody's has dealt building materials firm CRH a further blow after it placed $5bn (€4bn) of the company's debt on a negative ratings outlook.

The decision by the agency comes less than a week after shares in Ireland's biggest company plummeted 17pc in one day following a forecast from the firm that earnings this year are likely to fall by 10pc.

CRH is being hit by sluggish activity in the US, where it earns about half its profits, and continuing concerns the country could be enveloped by a double-dip recession.

CRH's aggregates division operates in 44 US states and provides concrete, asphalt and gravel used in highway construction.

US materials

The company noted last week that its US materials business had experienced lower-than-expected volumes and more competitive pricing due to lower-than-anticipated levels of commercial construction and pull-backs in state budgets.

Yesterday, Moody's said it was reaffirming CRH's 'Baa1' rating for a number of entities in the group including CRH America, CRH Group Funding, CRH Finance (UK) and CRH Finance BV, but that it was changing the outlook to negative from stable. "The change in rating outlook was prompted by Moody's expectation that CRH's full-year results will lead to an RCF (retained cash flow)/net debt ratio that is not commensurate any more with the currently assigned Baa1 rating," said agency senior vice-president and lead analyst for CRH Matthias Hellstern.

"The rating affirmation assumes, however, that CRH will be able to recover its capital structure again in the next 12-18 months."

Moody's noted that in addition to low demand, pricing pressure increased in some markets within which CRH operates, putting further pressure on the company's profitability and cash flow generation ability.

It also said that while the number of CRH shares increased following a rights issue last year, it did not alter its dividend per share structure.

"This could have a significant negative effect on the company's free cash flow generation and leverage ratio, if the pick-up in shares for the next dividend payment would be significantly lower than in the first half of 2010," Moody's added.

Shares in the company were unchanged yesterday at €12.10.

Irish Independent

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