PPC Plunges After S&P Cuts Rating, Raises Liquidity Concerns

  • Ratings agency cites debt-to-earnings ratio, expansion plans
  • PPC says it will accelerate, strengthen capital raising plan

PPC Ltd. shares dropped to a 13-year low after the South African cement maker said it would accelerate a plan to raise funds following a credit-rating cut by S&P Global Ratings, which warned of a possible liquidity squeeze.

S&P cut PPC’s long- and short-term corporate credit ratings seven levels to below investment grade and placed its long-term rating on negative watch, the ratings company said late Monday. As a result, holders of PPC’s 1.75 billion rand ($110 million) of domestic medium-term notes can choose to redeem the securities and interest, the Johannesburg-based company said in a statement on Tuesday.

PPC shares fell as much as 9 percent to 9.35 rand in Johannesburg on Tuesday, the lowest since March 2003, and traded 4.5 percent lower at 9.81 rand by 12:30 p.m. local time. The stock has slumped about 51 percent in the past 12 months.

“The severity and timing of this ratings action was unexpected and has therefore compelled the company to accelerate its capital raising plans and increase the quantum of the previously planned capital raise,” PPC said. The company said May 23 it was preparing a capital raising of 3 billion to 4 billion rand to cut debt and fund expansion.

PPC is turning to shareholders for funds after pumping money into new Africa projects as it seeks growth elsewhere amid tough competition and falling prices in its home market. New cement plants are under construction in the Democratic Republic of Congo, Zimbabwe and Ethiopia. The company’s ratio of adjusted debt to earnings before interest, taxes, depreciation and amortization will average four times in the 2016 and 2017 financial years due to the capital expenditure plans and a weaker operating environment in South Africa, S&P said on Monday.

PPC said its debt will probably peak at as much as 12 billion rand in the 2017 financial year, not including the impact of the capital raising, and reduce thereafter as the cash flow from new projects kicks in.

PPC plans to raise as much as 4 billion rand through a rights issue and will also consider other forms of equity capital raising as appropriate, it said on Tuesday. Details of the rights issue will be announced on June 14, when the cement maker also releases earnings figures.

PPC expects basic earnings per share for the six months through March were 30 percent to 40 percent higher than a year earlier, mainly as a result of profit realized on the sale of assets, the company said in Tuesday’s statement. Ebitda will probably show a “marginal improvement,” while so-called headline earnings per share are expected to be 10 percent to 20 percent lower.

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