Tuesday, 24 May 2016 23:02

PPC downgrade warning hits stock

Written by
Rate this item
(0 votes)

PPC warns of a credit rating downgrade and said it was in the advanced stages of a capital raising exercise for up to R4bn, tanking its shares.


PPC, SA’s biggest cement producer, warned on Monday of a credit rating downgrade and said it was in the advanced stages of a capital raising exercise for up to R4bn, tanking its shares.

Its shares plunged as much as 20% before closing 18% down at R11.25.

The capital raise would reduce “current” debt levels and fund existing investment projects. Gross group debt was set to rise to between R10bn and R12bn in the next few years.

The producer was building capacity in the rest of Africa, and wanted to derive 40% of total revenues from the continent by next year.

PPC did not mention which ratings agency was likely to downgrade it.

“We will advise our shareholders and other stakeholders of the outcome of such engagement as soon as a final decision has been made by the credit ratings agency. The capital raising exercise will support the debt rating of PPC,” it said in a statement to the JSE.

PPC is finalising the building of plants in the Democratic Republic of Congo, Ethiopia and Zimbabwe. Its greenfield 600,000 tonnes per annum Cimerwa cement plant in Rwanda is being ramped up and expected to achieve full production by mid-2018.

PPC said it had “consistently communicated” that it was reviewing its balance sheet to provide for the 2016 and 2017 debt maturity profile, and to put the company in a “good

Continued on page 2

position to execute its strategy”.

Sibonginkosi Nyanga, an analyst at Momentum SP Reid Securities, said on Monday that the “assumption from the market is that PPC will do a rights issue”.

“Shares in a rights issue are often offered at a significant discount to the current market price, particularly if appetite for the shares needs to be encouraged,” he said.

“Generally rights issues are frowned upon because of the sensitivity about dilution. Share sales dilute existing owners if they don’t follow their rights, and if they do, they can be expensive.”

He said the sum that PPC intended raising was almost half of the group’s market capitalisation.

“The company’s problem is that debt levels have risen alarmingly as income has fallen. PPC’s debt is expected to peak at between R10bn and R12bn in 2017 … possibly breaching agreed covenants with banks … so some form of capital raising is needed,” he said.

“The downgrade will have a negative impact on PPC’s ability to borrow as it will be expensive,” Nyanga said.

Victor Seanie, investment analyst at Kagiso Asset Management, said on Monday the announcement meant that PPC had too much debt to maintain its current credit rating.

“PPC’s reduced margins — due to heightened competition in SA and the group’s ongoing capital investments in the rest of Africa — have substantially reduced its free cash flow and its ability to support its current debt levels.”

source" Business Day

Last modified on Tuesday, 24 May 2016 23:17

Most Popular

Supporting solar energy solutions in South Africa

May 29, 2017
Parabolic Trough Solar Thermal Electric Power Plant
As part of the government’s Renewable Energy IPP Procurement Programme (REIPPP), that…

Echo Polska Properties completes acquisition of Warsaw retail development

Jun 01, 2017
Galeria Młociny
Echo Polska Properties, the dual JSE and LuxSE listed ‘pure Polish property play’…

How junk status will affect the property market

Jun 08, 2017
Jacques van Embden
News broke last week that The Fitch ratings agency could affirm SA’s rand-denominated…

Breathing new life into the CBD

May 29, 2017
Gustav Voigts Shopping Centre
Upmarket development in Windhoek’s central business district (CBD) is on the rise and has…

Green Building Council South Afica inspires South Africans to connect with nature on World Environment Day

May 30, 2017
Hotel Verde eco pool smaller
The Green Building Council SA (GBCSA) is celebrating World Environment Day on 5 June with…