Moody's reviews Lafarge for possible cut to junk

Moody's put Lafarge's debt Baa3 rating under review
* Says group to face "challenges" to achieve leverage ratios

* Lafarge shares down 0.54 percent

* France's CAC 40 index of blue chips .FCHI down 0.28 pct

Lafarge (LAFP.PA) may see its 15.2 billion euro ($19.87 billion) debt cut to speculative grade by rating agency Moody's, as the world's largest cement maker faces "challenges" to meet leverage ratios in a sluggish construction sector.

The Paris-based group, whose debt was swollen by the acquisition of Orascom Cement in 2007, cut its forecast for global cement demand last Friday, citing concerns over austerity measures in Europe that could affect infrastructure projects.

By putting its Baa3 rating under negative review, Moody's Investors Service is the second of the major three rating agencies to threaten to cut the French group's debt to junk status, after S&P put its BBB- on review last March.

Fitch also rates Lafarge's debt a notch above speculative grade.

In a statement on Tuesday, Moody's said that there has been "limited progress in the company's financial metrics".

This was "despite meaningful deleveraging measures since 2008, such as a rights issue, reduction of capex and efficient working capital management, which have been offset to some extent by the decision to increase the dividend payment."

A Lafarge spokeswoman declined to comment on the rating decision.

A downgrade of Lafarge's debt would increase interest payment by 55 million euros on a 12-month basis, Chief Financial Officer Jean-Jacques Gauthier told a conference call after the group's first-half results last Friday.

Chief Executive Bruno Lafont also said at the time Lafarge would limit investments to 1 billion euros in 2011 to reduce debt, and had cut costs by 200 million euros so far this year.

The group would exceed its cost-cutting target for 2010 by 200 million euros and would target a further cost reduction of 200 million euros next year, he said.

These measures were prompted by the still declining results Lafarge posted in the first half and the dark outlook the group gave to the market, saying global cement demand in its markets would rise by 3 percent at best, or fall 1 percent at worst.

Lafarge's debt rose to 15.2 billion euros at end-June, from 14.6 billion euros at the end of the first quarter.

Moody's said the debt had been strongly influenced by the weak euro, which, according to Lafarge, translated into an additional 1 billion euro of debt at end-June.

Lafarge shares were down 0.54 percent by 1450 GMT broadly in line with France's CAC 40 index of blue chips .FCHI which was down 0.28 percent. The stock had closed down 3.9 percent last Friday on the company's earnings results. ($1=.7650 Euro)