PPC makes bridging deal with banks

30-06-2016
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SA Construction News
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PPC says it has entered into a standby underwriting agreement over its proposed rights offer of R4bn with a syndicate of banks.

This announcement came on Monday after the debtladen cement maker on Friday said its short-term liquidity position had been strengthened, following a liquidity and guarantee facility agreement with the same group of lenders: Standard Bank, Nedbank, Absa, and Rand Merchant Bank.

Standard Bank was appointed sole global coordinator. This had guaranteed up to R2bn of the company’s outstanding notes, after a recent ratings downgrade by S&P Global Ratings.

“The joint bookrunners have provided a standby underwriting commitment of R4bn in relation to the proposed rights offer. This will be replaced by a formal underwriting commitment in due course, subject to the satisfactory fulfilment of the conditions precedent,” PPC said.

Before the proposed capital raise, PPC’s debt, including nonrecourse debt, was anticipated to peak at between R10bn and R12bn in financial 2017. Much of this related to cement plant projects elsewhere in Africa.

In late May, the group said it wanted to raise between R3bn and R4bn through a rights issue. It later said it would also consider other forms of “equity capital raising … in light of its position, market conditions and other factors”.

The cement maker subsequently scrapped its dividend payment for the first time, after posting a sharp drop in profits in the interim period to March. At the time, its auditor Deloitte said it could not draw a conclusion on the company’s ability to continue as a going concern.

“The execution of the irrevocable and unconditional guarantee in favour of noteholders, as well as the signing of the standby underwriting agreement, are two major milestones for PPC,” CEO Darryll Castle said. “These pave the way for the company to resolve its capital structure issues effectively, and focus its efforts on implementing its strategy going forward.”

Gareth Visser, an analyst at Avior Capital Markets, said PPC management had indicated it was planning to come to the market with a rights issue before the ratings downgrade. “However, the ratings downgrade necessitated a change in the quantum of the rights issue, and as such, the underwriting agreements with the banks had to be renegotiated. Management have provided no information to the market regarding the rights issue price, or the cost thereof, however current (share price) levels give an indication that the rights issue may be highly dilutive,” Visser said.

Sibonginkosi Nyanga, an analyst at Momentum SP Reid Securities, said PPCs management’s plans on the bridging facility and the capital raise were sufficiently advanced that Deloitte’s disclaimer had to fall away.