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Cheap ECB cash may not boost corporate borrowing: Heidelberg Cement
[HEIDELBERG, Germany] Cheap European Central Bank (ECB) loans will not be enough on their own to boost corporate borrowing and investment while demand in many markets remains subdued, the finance chief of Germany's HeidelbergCement said on Thursday.
ECB chief Mario Draghi unveiled a bold package of measures last week, cutting interest rates, expanding asset purchases and launching a fresh round of super cheap loans, aiming to kick-start growth and stave off the threat of deflation. "I think Mr Draghi would be structurally mistaken if he believed that the cost of debt alone would determine debt ratios," HeidelbergCement Chief Financial Officer Lorenz Naeger told a news conference.
"That's a misunderstanding that perhaps explains why monetary measures are going into a void and inflation isn't rising." HeidelbergCement, set to become the world's second-biggest cement maker after LafargeHolcim when it buys Italcementi later this year, has no plans to change its borrowing plans in response to even cheaper funding. "I would like to say clearly that if Mr Draghi sends interest rates to zero we don't see that as a free pass to limitless borrowing," Naeger said.
Germans have been the biggest sceptics of ultra loose ECB policies as German banks are already awash with liquidity, unlike rivals in southern countries, and the biggest impediment to growth has been weak demand, not the lack of funding.
LafargeHolcim said on Thursday it expected the cement market to grow a modest 2-4 per cent this year, with China and Brazil remaining tough places to do business.
HeidelbergCement said earlier it planned to keep capital investment steady this year at 1.1 billion euros (US$1.2 billion). "Mr Draghi can lower rates as far as he wants. We won't budge from a healthy financing structure, because the next day he may raise rates just as erratically as he cut them and then we'll be left in the lurch," Naeger said.
HeidelbergCement has struggled to reduce its debt-to-profit ratio since the financial crisis, and has finally reached a level it hopes will win it an investment-grade credit rating.
It has taken advantage of low interest rates to refinance its debt and Naeger said it was considering issuing another bond, but would not be pushed to borrow more.