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PIC Blocked in Move to Redeem Afrisam Debt, Take Control

The Public Investment Corp.’s bid to redeem debt in Afrisam Ltd. was temporarily stopped by the Pretoria High Court, blocking the money manager’s bid to gain control of South Africa’s second-largest cement producer.

Bunker Hills Investments Ltd. won a court interdict to prevent the state-owned pension-fund manager from converting 4.7 billion rand ($579 million) of preference shares into equity, Peter Tshisevhe, a lawyer for Bunker Hills, said by phone yesterday, citing the judgment. The court ruling will have a “notable destructive effect on company management and operations,” the PIC said in an e-mailed response to questions.

The PIC and former MTN Group Ltd. Chief Executive Officer Phuthuma Nhleko are bidding to convert debt they own in Afrisam into shares as interest repayments threaten Afrisam’s ability to continue operating. Holcim Ltd., based in Jona, Switzerland, in 2006 created Afrisam by selling most of its South African business to black investors led by Bunker Hills.

Bunker Hills, which owns 37 percent of Afrisam, and Holcim, which retained a 15 percent stake, have said they oppose the debt conversion because it will dilute existing shareholders. Afrisam management hold 13 percent of the company, the Pretoria-based PIC, which manages 1 trillion rand in government-employee pensions, has 20 percent and community trusts the balance.

Afrisam needs between 3 billion rand and 6 billion rand, which Bunker Hills doesn’t immediately have access to, Mofasi Lekota, a director at Johannesburg-based Bunker Hills said last month. It must settle more than 1 billion euros ($1.4 billion) of senior-debt by February.

Urgent Interdict

Bunker Hills sought the urgent court order after the PIC on Oct. 28 sent a letter demanding it be paid outstanding debt on the preference shares to avoid the conversion, effective yesterday, said Tshisevhe. The interim order will allow Bunker Hills the opportunity to file supplementary information that will be heard and decided at a later date, the PIC said.

The PIC was also prevented from attaching any Afrisam shares owned by Bunker Hills, Tshisevhe said, citing Judge Eberhard Bertelsmann’s interim order at the Pretoria-based North Gauteng High Court, a copy of which was e-mailed to Bloomberg News. The case will be heard on Nov. 29, when Bunker Hills will ask that the interim order be made permanent, he said.

Speedy Resolution

“We shall remain guided by the court process,” the PIC said. “This is unfortunately another attempt to delay” the enforcement of the conversion agreement, it said, adding that the PIC’s efforts are driven by the need for a “speedy resolution” and to give it increased influence over the company.

“Up until now the voting has not been commensurate with our exposure, which is grossly inappropriate under the circumstances,” the PIC said. “This process in not meant to be an alternative to the conversion process. The process being followed is that which is stipulated in the legal agreements. The PIC is acting within its contractual rights as agreed at the time of its investment.”

Afrisam slid to a 128 million rand loss in the quarter ended June 30 compared with a year earlier profit of 93 million rand as sales declined and expenses increased. 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.

“We have spent a considerable amount of time and resources, reviewing a host of options to achieve an effective deleveraging of the company,” the PIC said. “Ultimately, the PIC aims to protect all stakeholder interests in a fair and balanced way but like with most restructurings, however, this is a challenging process and the options invariably imply some short term difficulties for all stakeholders.”

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