Fairfax Is Said to Back AfriSam to Clinch African Cement Deal

  • PIC said to mull scrapping 3 billion rand of AfriSam notes
  • AfriSam is said to plan new PPC offer at 30%-35% premium

Fairfax Financial Holdings Ltd. is prepared to inject as much as 5 billion rand ($386 million) to pay off bank debt owed by AfriSam Group Pty Ltd. and help South Africa’s second-biggest cement producer clinch a tie-up with larger rival PPC Ltd., according to two people familiar with the matter.

The money from the African unit of the Canadian insurer will be used to repay bank loans and allow AfriSam to push through a new offer to PPC, according to the people, who asked not to be identified because the details are private. The new proposal could be made at a premium of as much as 35 percent on PPC’s average share price over the past 30 days, one of the people said.

Talks are also underway that might result in the writing down of 3 billion rand of debt by the Public Investment Corp., Africa’s largest money manager, the people said. The debt is held in financial instruments known as payment in kind notes, which typically allow a company to pay off interest with additional debt or equity. The cash injection from Fairfax Africa would come days after previous talks about a combination failed and would help ensure that AfriSam does not default on its debt obligations, the people said.

PPC plans to issue a statement later on Monday, the Johannesburg-based company said in an emailed response to questions, declining to give further details. Telephone calls made to Fairfax’s offices in Toronto outside of normal office hours weren’t answered. Spokesmen for AfriSam and the PIC said they couldn’t immediately comment.

Bank Bet

The African unit of Fairfax, which started a fund of about $500 million for investments on the continent earlier this year, will get an equity stake in AfriSam for the cash injection, the people said. Fairfax Africa last week completed the purchase of a 42 percent stake in Atlas Mara Ltd., the company co-founded by former Barclays Plc Chief Executive Officer Bob Diamond. The company, which trades in London, owns banks across seven African countries and has declined 77 percent since an initial public offering in December 2013. 

Fairfax, which has almost $44 billion in assets and is known for its contrarian wagers, has also made other purchases in Africa, including a 7.4 percent stake in Commercial International Bank Egypt SAE and investments in agricultural company Afgri Operations Ltd., Africa Re, APR Energy, and Zurich Insurance Group AG’s South African business, which it rebranded Byte Insurance.

Junk Rating

Merger talks between Johannesburg-based PPC and AfriSam were first announced in December 2014, then called off a few months later before being revived in February this year. The initiation of fresh negotiations came after a turbulent year for PPC, which was forced to raise 4 billion rand in a rights issue after S&P Global Ratings cut its debt to junk, triggering early redemptions by bondholders.

The latest talks broke down after the companies couldn’t agree on how to value the deal, PPC Chairman Peter Nelson said on Aug. 25. Banks including FirstRand Ltd.’s Rand Merchant Bank and Old Mutual Plc’s Nedbank have already allowed AfriSam extensions on some of their loan repayments, the people said.

The PIC, which oversees about 1.9 trillion rand in mostly South African civil-servant pensions, owns about 60 percent of AfriSam. The second-largest shareholder is Phembani Group, the investment company co-founded by MTN Group Ltd. Chairman Phuthuma Nhleko, with a 31 percent stake. Nhleko is also chairman of AfriSam.

PPC shares reversed earlier losses to gain as much as 3.9 percent before trading unchanged at 5.45 rand as of 12:40 p.m. in Johannesburg. The stock has declined 1.5 percent this year, valuing the company at 8.7 billion rand.

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