Ratings agency Standard & Poor“s has put CSR Ltd on negative watch after the building materials group acquired glass maker Pilkington Australasia for AUD 690 million.
Standard & Poor“s said CSR“s …
Ratings agency Standard & Poor“s has put CSR Ltd on negative watch after the building materials group acquired glass maker Pilkington Australasia for AUD 690 million. Standard & Poor“s said CSR“s plan to fund the acquisition though debt would debilitate its financial profile and put CSR“s BBB-plus rating on CreditWatch with negative implications. “Whilst this acquisition complements CSR“s building products activities, the initial debt funding of these glass operations will weaken the company“s financial profile”, Standard & Poor“s said 29 June 2007. CSR said its USD 690 million deal would have an estimated, underwritten USD 180 million equity injection funded by the reintroduction of a dividend reinvestment plan (DRP). “Standard & Poor“s will seek to understand how quickly this acquisition debt will be amortised in light of the future DRP injection and the amount of future free cash flow that will be applied to debt reduction”, the ratings agency said. “The future capital needs and execution challenges of the glass operations, in combination with CSR“s other capital growth needs, will also be considered”. “The rating could be lowered if Standard & Poor“s believes that the credit metrics will remain weak for a sustained period and will not return to be within managements stated financial policy in the medium term”. Pilkington Australasia operates glass manufacturing facilities at Dandenong in Victoria, and Ingleburn and Alexandria in New South Wales. It produces around 215,000 tonnes of float glass and rolled glass, with 32 distribution sites across Australia and New Zealand carrying out cutting, toughening and laminating. The business has a 60% share of the architectural glass market in Australasia and 30% of the value added glass distributor market in Australia. Standard & Poor“s noted CSR“s undertaking to refurbish the Dandenong plant in the near term would require additional capital, but would “significantly” improve CSR“s earnings in the medium term.