Tuesday, 02 August 2016 10:23

PPC facing mounting pressure

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PPC may be seeking alternative underwriters for its R4bn rights issue as the fees charged by local banks are 'prohibitively expensive'.

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PPC may be seeking alternative underwriters for its R4bn rights issue as the fees charged by local banks are “prohibitively expensive”, a source familiar with the matter told Investors Monthly, a Financial Mail publication.

SA’s largest cement maker had allegedly found favour with some international lenders, who were willing to give it a helping hand, the source said.

PPC’s long- and short-term credit rating was slashed to junk status by S&P Global Ratings last month, making it that much harder for it to raise funding.

The company is suffocating under a R9.2bn debt pile, which is twice the size of its market capitalisation on the JSE.

But it is the lack of confidence in PPC’s board and management team that banks allegedly cited as their major concern.

Some of this sentiment stems from the handling of a public spat between PPC’s former CEO, Ketso Gordhan, and its CFO, Tryphosa Ramano. PPC has also been unable to find a replacement for former board chairman Bheki Sibiya.

Other concerns are more current.

Last month PPC posted a circular outlining the details of its standby underwriters for the rights issue, the number of shares to be issued, how the proceeds would be used and dates for shareholders who wished to take up their rights.

The country’s big four lenders, Standard Bank, Nedbank, Absa and Rand Merchant Bank, are the standby underwriters for its proposed R4bn capital raising.

PPC’s share price has come under immense pressure on the JSE this year, reflecting investor jitters about the cement industry, challenged by tight competition and the lack of government expenditure on mass infrastructure projects.

At R8.25 PPC’s share price has almost halved, from R14.85 in January.

“We have had a negative call on PPC since 2015,” Imara SP Reid analyst Sibonginkosi Nyanga says. But PPC is not a straight sell, as it has upside potential, mainly from its African operations, which were expected to start taking off. The local trading environment remains tough.

“We are waiting for the outcome of the rights issue. Depending on how that goes, we may reassess our recommendation on PPC,” Nyanga says.

The rights issue is critical to reposition the company on a stronger footing and to unlock shareholder value.

PPC has already commissioned its greenfield plant in Rwanda, stepping closer to its target of generating 40% of revenue from the rest of the continent by 2017.

It hopes to commission plants in Zimbabwe, the Democratic Republic of Congo and Ethiopia in the next 12 months.

source: Financial Mail

Last modified on Thursday, 14 September 2017 13:31

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