LafargeHolcim on Moody’s Downgrade Review After Payout Plan

  • Swiss cement maker increased dividend, announced share buyback
  • Any downgrade of LafargeHolcim would be limited to one notch

LafargeHolcim Ltd. had its credit ratings placed on review for downgrade by Moody’s Investors Service, which cited the cementmaker’s proposals to increase its dividend and repurchase shares.

The company plans to increase its dividend to 2 Swiss francs per share for 2016 and buy back as much as 1 billion francs ($991 million) of stock over the next two years at a time when its credit metrics were “already weak for its current rating,” Moody’s said in a statement published late on Monday. A downgrade of one notch would leave LafargeHolcim on the lowest investment-grade level.

Chief Executive Officer Eric Olsen is juggling promises to increase profitability, lower debt and return cash to shareholders of the company, created a year ago by the merger of the world’s top two cement makers. An economic slowdown had caused a slump in demand for building materials, and the need for greater efficiency in manufacturing concrete, asphalt and aggregates.

While LafargeHolcim has already delivered on some of its targets since the merger, “improvements in credit metrics are coming through more slowly than expected,” Moody’s said in the statement, adding any downgrade to the rating, currently at Baa2, would be limited to one notch.

Moody’s also said it needed to evaluate the cement maker’s revised target to reach adjusted operating earnings before interest, taxes, depreciation and amortization of 7 billion francs by the end of 2018.

Shares of the company have advanced 12 percent this year, valuing it at 33 billion francs. The stock advanced 1.4 percent to 54.30 francs as of 1:22 p.m. in Zurich.

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