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.

 Darryll_Castle_PPC_CEO

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

Introducing cutting edge tech to the property industry

Feb 28, 2017
Virtual Reality Technology
Positioning ourselves at the cutting edge, Fieldspace Property Group is transforming the…

Calling all Cape Town owners and managers of commercial buildings and operations: Let’s talk energy and water

Mar 04, 2017
CoCT Energy Efficiency Forum
Join us for the Energy Efficiency Forum on 16 March at 8:30 for 9:00 until 12:30 followed…

REBOSA opposes racist property advertisement in the strongest terms

Mar 02, 2017
Jan le Roux REBOSA
The real estate industry has been placed under an uncomfortable spotlight yet again with…

Making green affordable housing a reality

Mar 07, 2017
Belhar Gardens
Nedbank Corporate and Investment Banking (NCIB) today announced that is has made the…

Gallo Manor one of Joburg's best kept secrets - Property market remains upbeat in sought after Sandton suburb

Mar 11, 2017
Gallor Manor R2 85 million
One of Johannesburg’s best kept secrets is Gallo Manor, a leafy residential suburb…