Holcim, Investor Partner Oppose Nhleko, PIC Bid for Afrisam

Afrisam Ltd.’s largest shareholders, including Holcim Ltd., said they oppose a takeover bid by South Africa’s government-owned pension fund manager because it will undermine efforts to redistribute wealth to black investors.

The Public Investment Corp. and former MTN Group Ltd. Chief Executive Officer Phuthuma Nhleko, who is black, are bidding to convert debt they own in South Africa’s second-largest cement-maker into shares as interest repayments threaten Afrisam’s operations. Holcim, based in Jona, Switzerland, in 2006 created Afrisam by selling most of its South African business to Bunker Hills Investments Ltd.

A conversion will dilute existing shareholders and leave Bunker Hills with “almost nothing,” Mofasi Lekota, a director at the Johannesburg-based company, which owns 37 percent of Afrisam, said in an interview. “Are we spreading the country’s wealth or simply allowing established black investors to cannibalize others?”

South Africa’s government is pushing companies from banks to mines to sell stakes to black investors to make up for discrimination during apartheid, which ended in 1994. Bunker Hills funded the acquisition, its only investment, with about 23 billion rand ($2.9 billion) in debt, which it is struggling to repay after a recession crimped cement demand in Africa’s largest economy. Holcim owns 15 percent of Afrisam and the company’s management holds 13 percent.

‘No Need to Rush’

“We cannot just focus only on converting the debt,” Christof Haessig, a director of Holcim and its representative on the Afrisam board, said in a telephone interview today. Options include restructuring Afrisam’s debt, a recapitalization, or new shareholders. “There’s no need to rush into the conversion,” which won’t help to boost the company’s value, he said.

The PIC, which manages 1 trillion rand in government employee pensions from its headquarters in Pretoria, owns 20 percent of Afrisam and 4.7 billion rand in preference shares. A conversion by the PIC of its debt “will ensure the company’s capital structure is appropriate for the business,” PIC Chief Investment Officer Dan Matjila said on Sept. 24.

Talks are ongoing and everyone involved is “working hard to avoid a default,” PIC Chief Executive Officer Elias Masilela said on Oct. 25, declining further comment.

Big Operator

Worldwide Africa Investment Holdings Ltd., of which Nhleko is chairman, wants to convert the 3.7 billion rand it is owed into shares, the Johannesburg-based company, said in an e-mailed response to questions.

Nhleko, 51, left MTN in March after expanding the company into 21 African and Middle East markets outside of South Africa during his 10 years at the helm, making it the continent’s largest mobile-phone operator. Worldwide Africa, formed in 1994, owns stakes in Engen Ltd., a South African oil refining and distributing unit of Petroliam Nasional BhD, and a coal-mining company.

“We hope that we can play a role as a South African equity investor in a South African company with strong fundamentals and good management that needs an equity injection to protect its long term value,” Worldwide Africa said.

Worldwide Africa in early 2010 approached Afrisam about a takeover, it said. After talks “collapsed,” it bought the debt on “favorable terms” because of Afrisam’s “strong operational fundamentals,” Worldwide Africa said.

‘Great Difficulty’

Afrisam services its debt “with a great deal of difficulty,” said Lekota, who is also a director of the company. Afrisam’s capital structure “is not ideal,” he said. “It has a lot of expensive debt.”

Afrisam needs a capital injection of between 3 billion rand and 6 billion rand, which Bunker Hills doesn’t immediately have access to, Lekota said. In February it must settle more than 1 billion euros ($1.4 billion) of senior-debt, Lekota said.

Some of the debt, which was arranged by the Johannesburg-based offices of Citigroup Inc. and JPMorgan Chase & Co., charges annual interest of about 23 percent while the senior notes charge 6.25 percent.

“We bought at the top of the market,” said Lekota. Cement sales in South Africa fell 23 percent in the four years through 2010, according to data compiled by the Cement & Concrete Institute, amid a recession that began in the final quarter of 2008 and lasted until the second quarter of 2009.

Afrisam Chief Executive Officer Stephan Olivier did not return five messages left with his personal assistant over a period of four weeks.

“If we exit Afrisam, it will not be our choice,” Lekota said, declining to comment on what steps it may take. “Bunker Hills hasn’t accepted its position as that of powerlessness.”

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