Debt Woes at South Africa's Eqstra Send Bonds Tumbling

  • Company has 1.67 billion rand of bonds due next 2 1/2 years
  • Total debt is more than eight times company's market value

Borrowing costs for South Africa’s Eqstra Holdings Ltd. climbed to a record in the two weeks since S&P Global Ratings cut the company’s credit rating, citing refinancing risks.

Yields on 100 million rand ($6.8 million) of securities due in April 2018 have climbed 158 basis points since the start of the year to a record 13.34 percent on Wednesday. The shares slumped 8.1 percent to 205 rand by the 5 p.m. close in Johannesburg, giving the company a market value of 831 million rand.

Johannesburg-based Eqstra, which imports and distributes industrial, construction and mining equipment, has 1.67 billion rand of bonds maturing in the next two-and-a-half years, according to the company. Total debt, including bank loans, reached 7.55 billion rand as of Dec. 31, the company said in a stock exchange statement on March 1.

“The first priority is finalizing the refinancing of the bank debt and then obviously we’ll deal with the capital market maturities,” Group Treasurer Henk Lindeque said by phone from Johannesburg. “That’s a year away so there’s still a lot of things that can happen.”

South Africa’s mining industry, which accounts for more than half of its exports, has been hit by a global slump in commodity prices, exacerbated by signs of slowing growth in China, the world’s second-largest economy and the biggest importer of the nation’s raw materials. The industry has also suffered from insufficient electricity supply and output has contracted for the last six months to February.

Eqstra faces “significant refinancing risks and liquidity challenges over the next 12 months due to limited free operational cash flows and access to debt capital markets,” S&P said on April 26, when it cut the company’s credit rating and placed it on a negative watch, signifying that more downgrades could follow.

Bank Loans

The company raised almost 450 million rand by selling fixed- and floating-rate bonds in 2013, and planned to use the money to pay down commercial paper and bank debt. Those bonds are due between November 2016 to October 2018. Capital-market debt constituted about 25 percent of the company’s liabilities, with the rest made up of bank loans, Lindeque said.

“We’ll refinance that at the appropriate time and funding instrument,” Lindeque said. “We’ll either refinance it through the banks, through some other funding instrument, through the capital market, or we might repay it.”

Eqstra said on April 8 it had received an “expression of interest from a third party,” advising investors to exercise caution when trading its shares.

(Corrects story from May 4 to reflect reason for yield move in first paragraph; period of maturities in third paragraph; attributes debt outstanding to company.)
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