South African Cement Maker PPC Rejigs Debt Amid Takeover Talks

  • PPC extends debt maturities, freeing up 1 billion rand
  • Possible PPC merger may create value for shareholders

PPC Ltd., the cement maker that’s in talks with potential suitors, renegotiated the bulk of its debt obligations in South Africa and the Democratic Republic of Congo as new operations in the region start to generate additional cash.

Extending maturities on 1.6 billion-rand ($120 million) in debt owed to lenders by June 2018 has created about 1 billion rand in financial headroom, acting Chief Executive Johan Claassen said in an interview. In the Congo, where PPC received a debt repayment holiday, and Ethiopia, plants will begin operating in the second half of the next financial year, boosting earnings.

“Five months ago we felt like jumping off a cliff, but today we can go holiday with a bit of a smile,” said Claassen by phone Thursday from Johannesburg. “We have managed to take a step back to address our debt maturity profile and liquidity, and to get our African operations back to the original business plans that we envisaged.”

South Africa’s largest cement maker is being circled by a number of buyers including local rival AfriSam with Canadian insurer Fairfax Financial Holdings, Switzerland’s LafargeHolcim Ltd., and Dublin-based CRH Plc. Having returned to profit in the six months through September, PPC is on a firmer footing as talks with its multiple suitors progress. It rejected a formal 5.75 rand-a-share offer from Fairfax on Wednesday, granting it an extension to Dec. 12 to place a higher offer.

Fiscal first-half profit excluding one time items totaled 335 million rand compared with a loss of 157 million a year earlier. PPC’s immediate focus is to improve profitability and available cash, and then look at options to create value for shareholders, said Claassen.

“Even though there might be a need for consolidation in the cement market in the future, from these results I’m pleased the core business is showing resilience” Tinashe Kambadza, an equity analyst at Afrifocus Securities in Johannesburg, said by phone. “PPC is cutting costs, has reduced debt, and the growth in rest of Africa is above our estimates.”

PPC plans to strengthen its DRC unit via a possible equity partnership or deal with China’s Sinoma International Engineering Co.

The shares rose 0.6 percent at 6.64 rand as of 9:08 a.m. in Johannesburg, extending their rally this year to 20 percent.

“In the short-term we probably do not need to do a deal,” said Claassen. “However, we cannot just walk away from it. The South African market needs some consolidation and we need to be the right size to compete.”

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