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 available below.

The affirmation follows the completion of the merger between Holcim and Lafarge SA and reflects the combined group's (LafargeHolcim) improved scale, diversification, market positions and synergy potentials. We forecast funds from operations (FFO) adjusted net leverage in excess of 3.0x for the combined group in 2015, given the all share transaction between the two constituent companies. This assumes that the EUR6.5bn cash proceeds from the disposal of assets to CRH plc will be used to repay debt. We expect a recovery in global end-markets, particularly in developed markets and continued healthy growth in emerging markets to support internally generated cash flow.

Fitch has also published a Rating Action Commentary on Lafarge. Further details can be found on www.fitchratings.com.

KEY RATING DRIVERS

Diversification and Market Position
LafargeHolcim is the world's largest building materials company, with combined net sales of CHF33bn (EUR27bn) in 2014. It holds number one market positions in cement, aggregates and ready-mix products and benefits from the constituent companies' complementary asset base in Latin America and Africa & Middle East.

Synergies
Management aims to reap CHF1.7bn (EUR1.4bn) in run-rate synergies after the end of the third year after the merger through best practices and cross-utilisation, financial savings and optimised capex allocation. In addition, the group plans to implement CHF500m (EUR410m) in working capital savings over the same period. These measures will support the credit profile of the combined group in the long-term, although their costs will offset the benefits in the near-term.

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%, respectively, at end-2014. Fitch proportionally deconsolidates the EBITDA and FFO of these Indian entities, according to the interest Holcim owns in them.

RATING SENSITIVITIES

Including the pro-rata consolidation of the Indian-controlled subsidiaries, FFO adjusted gross leverage below 3.0x, net leverage below 2.5x and materially positive FCF could lead to a positive rating action.

Conversely, FFO gross and net leverage above 4.0x and 3.5x, respectively, potentially arising from the use of EUR6.5bn in proceeds from the disposal of assets to CRH for other purposes than debt reduction could put pressure on the ratings. EBIT margin below 10% or negative FCF would also be negative.

LIQUIDITY

Holcim's liquidity was sound at end-2014, with unused committed credit lines of CHF3.4bn (CHF3.8bn including unused lines that mature in 2015). 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 which we therefore consider not freely available.

KEY ASSUMPTIONS FOR THE COMBINED GROUP

-Moderate revenue growth and EBITDA margins broadly stable at around 20%
-Continued dividend distributions in line with previous years
-FCF generation of around CHF500m per annum
-Use of EUR6.5bn in proceeds from the disposal of assets to CRH to fund merger-related transactions and repay debt
- Continued smaller M&A

FULL LIST OF RATING ACTIONS

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'