Shareholders punish PPC for floating a plan to tap them for more funding
Shares in PPC tanked almost 10% on Thursday after the cement maker said it was weighing a rights issue in a move that would put shareholders on the hook for the second time in four years as an industry-wide slump coincided with the Covid-19 economic crisis.
Like its rivals, PPC has been struggling to grow sales at a faster pace for much of the past decade as public and private sector clients cut back on infrastructure spending in a weak SA economy, prompting the company to load up on debt to build plants in Ethiopia, Rwanda and the Democratic Republic of the Congo (DRC).
It said on Tuesday it needed the money — which Bloomberg, citing unnamed sources, reported is to the tune of R1.25bn — to fix its increasingly lopsided capital structure stemming from cross-border expansion.
But it would pull the trigger on the rights offer only if and when it reaches an agreement with lenders about a range of issues including resetting its debt covenants, extending debt maturities and undertaking a debt restructuring for its DRC subsidiary, PPC Barnet, to reduce the division’s reliance on the group.
The overhaul of the capital structure could also lead to the company diluting its 100% interest in international business with another fund-raising, which would be used partly to pay off its share of liabilities in the DRC debt-restructuring process.
It is envisaged that PPC International, which houses the company’s businesses in the DRC, Mozambique and Rwanda, will remain a subsidiary company of the group, PPC said.
Shares in PPC skidded as much as 9.6% before paring losses to close to 2.4% lower at 81c, a remarkable turnaround in fortunes for the stock, which fetched a record R35 in 2007 in the construction boom leading up to the 2010 World Cup. The stock has lost more than twothirds of its value so far in 2020.
If the rights offer goes ahead, it would be the second time PPC taps shareholders for cash since 2016. In that year, it raised R4bn in a deeply discounted rights share offer to partly pay off its outstanding corporate bond following a ratings downgrade that triggered an early redemption of the note.
The liquidity crunch at PPC’s DRC operations, in which it owns about 69%, come as some investors publicly denounce the destruction of shareholder value by SA companies’ ill-fated cross-border expansion to escape an economy that was being wrecked by immense corruption under the state capture project in the past decade.
But PPC, like a number of other SA companies, has been a dud of a company elsewhere in Africa, partly because of the commodities crash of 2015.
Companies soon found that doing business in Africa was more expensive and difficult than they had envisioned at the beginning of the 2010s.
Expatriating money from Nigeria and Zimbabwe has also been challenging.
PPC, which is labouring under R4.6bn debt, has been providing funding to PPC Barnet, and the need to refinance has been worsened by the effects of the Covid-19 pandemic, the group said.
The DRC operation, which started production in 2017, has weighed on the group, with PPC saying in its 2019 annual results that it has advanced a total of R945m to plug cash shortfalls.
PPC has also experienced regulatory and political challenges in the DRC market.
“The political, regulatory and macroeconomic environments continue to cast doubt on the economic turnaround of the country,” PPC said in its 2019 results, when it reported group net debt of R4.6bn.
PPC said it had “mobilised significant internal and external resources” to implement the project including the appointment of Antony Ball as executive director to lead it. Ball, who had been an independent executive director at PPC since March 2018, was appointed as an executive director in June.
Gleacher Shacklock, a London-based investment banking house, has been appointed as the adviser, PPC said.