PPC Declines as Cement Maker Prepares for Early Bond Redemptions

  • Cement maker seeks 2 billion rand bridging guarantee facility
  • Net income rose 35% in six months through March, sales fell

PPC Ltd. fell to a 13-year low in Johannesburg as the cement maker said it’s arranging a bridging guarantee facility to prepare for the potential early redemption on 1.75 billion rand ($114 million) of bonds triggered by a credit-rating downgrade.

The stock dropped 6.2 percent to 9.10 rand by 2:50 p.m., the lowest on a closing basis since March 2003. Aside from the 2 billion rand bridging guarantee, South Africa’s biggest listed cement maker is also preparing to raise 3 billion rand to 4 billion rand in a rights issue and expects to complete that process by September, Chief Executive Officer Darryll Castle said Tuesday by phone. 

PPC is being forced to raise funds after S&P Global Ratings cut its credit rating to below investment grade amid rising debt due to investment in new African projects, combined with a difficult trading environment in its home market. The bridging facility, for which the company still needs to meet certain conditions, will be used to settle outstanding obligations on the notes, which bondholders can elect to redeem with interest this month, and to provide the company with funding ahead of the capital raising.

“It seems the market is reacting to concerns around the balance sheet, potential project cost overruns,” and medium-term challenges in African cement markets, said Gareth Visser, a Cape Town-based analyst at Avior Capital Markets. Investors may also be worried about potential dilution from the planned rights issue, he said in an e-mail.

PPC has plants under development in the Democratic Republic of Congo, Zimbabwe and Ethiopia to expand outside its home market, where cement makers are battling increased competition and slowing economic growth. The $280 million Congo project may end up 4 percent to 6 percent over budget, the company said on Tuesday in a statement.

The bridging facility and size of the capital raising was necessitated by the “timing and severity” of S&P’s downgrade, CEO Castle said. While the outlook in South Africa was more positive when the company started expanding, debt was expected to rise as it builds and starts up the new plants, he said.

Reducing Debt

‘‘The company wouldn’t have been at massive risk,” he said. “We were on top of the situation and the company would have dealt with it in an orderly way.”

PPC expects to have repaid 3 billion rand of debt after the capital raising is completed and will use the balance of the additional funds to extend debt maturities, Castle said in a presentation in Johannesburg. A group of banks, made up of the Standard Bank Group Ltd., Nedbank Ltd., Absa Bank Ltd. and FirstRand Ltd.’s Rand Merchant Bank has been mandated to assist with the transaction, PPC said in its statement.

PPC’s net income rose 35 percent to 369 million rand in the six months through March, while revenue fell 1 percent to 4.5 billion rand. The stock has dropped 40 percent this year, the worst performer on the FTSE/JSE Africa All-Share Index.

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