Holcim Offered 14% of Afrisam as PIC Saves Cement Maker from Debt Default

Holcim Ltd. (HOLN) and Bunker Hills Investments Ltd. were offered an extra 14 percent of Afrisam Ltd., South Africa’s second-largest cement producer, for 940 million rand ($117 million).

The companies will have 18 months to buy the stake, Elias Masilela, the Public Investment Corp.’s chief executive officer, said in an interview in Johannesburg today. The PIC, which manages 1 trillion rand in government-employee pensions, reached an agreement with Holcim over the past weekend to reorganize Afrisam’s debt to avoid the cement maker defaulting on 1.03 billion euros ($1.3 billion) of bonds due next month.

“This development allows Afrisam to focus on its operational fundamentals as well as grow the business, and most importantly, allows for the protection of the value of the Government Employee Pension Fund’s investments,” Masilela said. The reorganization of Afrisam’s debt will cut its liabilities by more than 15 billion rand to 6.5 billion rand.

Holcim, the world’s second-largest cement producer, helped create Afrisam in 2006, selling its South African business to Bunker Hills and other investors for 23 billion rand, funded with debt. Holcim retained 15 percent of Afrisam, Bunker Hills owned 37 percent and management 13 percent.

‘Save the Company’

The PIC and most holders of Afrisam agreed in December to reorganize the company’s debt to save it from failure amid a slump in cement sales. The PIC, based in Pretoria, now owns 99 percent of Afrisam after converting debt into equity and pledges it provided as security when the deal was completed, in addition to a 20 percent stake it bought at the time.

The current stake will drop to 57 percent once Afrisam’s debt has been restructured, Masilela said. Former MTN Group Ltd. (MTN) Chief Executive Officer Phuthuma Nhleko’sPembani Group (Pty) Ltd. will own about 38 percent.

“It became very clear that the only way to save the company was to take the steps we have taken,” said Masilela.

Holcim, based in Jona, Switzerland, yesterday said it is writing down 415 million francs ($439 million) of debt and accrued interest owed to it by Afrisam. It will retain a 2 percent stake once the debt reorganization is completed.

The PIC and other shareholders agreed to provide an additional 3.3 billion rand to help pay off Afrisam’s foreign debt due on Feb. 4, Masilela said in an interview. Of the 6.5 billion rand in total outstanding debt, the PIC and other local investors will hold 5 billion rand at an interest rate of 11 percent a year while the PIC will own the remaining 1.5 billion rand, which will charge 15 percent interest, he said.

Shed Control

The PIC will reduce its holding in Afrisam to 51 percent and Pembani’s interest will decline to 30 percent should Holcim and Bunker Hills buy the extra 14 percent stake, Masilela said. “We have yet to get an indication as to when they’d like to exercise the option,” he said.

The state-owned money manager, the largest in Africa, wants to reduce its Afrisam holding to below a controlling level once it has made an adequate return on its investment, Masilela said. “It is anomalous that we own this much in a single company,” he said. The PIC also owns about 14 percent of Pretoria Portland Cement Co. (PPC), South Africa’s largest cement maker, on behalf of the Government Employee Pension Fund.

The reorganization of the debt will allow Afrisam’s Tanga Cement Co. unit in Tanzania to add a second kiln line and for Afrisam to explore expansion opportunities in other African markets, said Afrisam Chief Executive Officer Stephan Olivier.

The company is going ahead with an environmental impact study to build a plant in South Africa’s coastal town of Saldanha Bay, he said.

To contact the reporter on this story: Sikonathi Mantshantsha in Johannesburg at smantshantsh@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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