Glass Industry

CSR Credit Rating Downgraded After Deal

Ratings agency Standard & Poor's has placed CSR Ltd on CreditWatch negative after the building materials group flagged the $690 million acquisition of glass maker Pilkington Australasia.

Standard & Poor's said CSR's plan to fund the acquisition though debt would weaken its financial profile and placed 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.

CSR said its $690 million transaction would have an estimated, underwritten $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 three glass manufacturing facilities in Dandenong in Victoria and Ingleburn and Alexandria in NSW.

It produces around 215,000 tonnes of float glass and rolled glass, with 32 distribution sites across Australia and New Zealand undertaking cutting, toughening and laminating.

The business has a 60 per cent share of the architectural glass market in Australasia and 30 per cent 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" enhance CSR's earnings in the medium term.

CSR shares were steady at $3.47 by 1459 AEST on Friday.

Source: The Age