The planned capital increase of at least R750 million by JSE-listed cement and lime producer PPC to unbalance the group’s South African balance sheet has been brought under review and the schedule has been pushed back six months at the end of September 2021.
This follows PPC’s South African lenders‘ agreement to postpone the timing of the capital increase for six months, which was originally scheduled to take place at the end of March.
PPC said on Wednesday that its South African lenders have also agreed to consider the need for a capital raise if South African companies continue to move towards a sustainable debt indicator of around twice earnings before interest, taxes, depreciation and amortization (Ebitda).
The planned capital increase, which was subject to the resolution of PPC’s $ 175 million senior debt exposure in the Democratic Republic of the Congo (DRC), was part of the commitments PPC made to its South African lenders in August 2020.
PPC announced on Wednesday that it had resolved the group’s exposure to PPC Barnet’s senior debt in the DRC through a settlement agreement, with restructuring of that debt to be completed by September 30.
PPC CEO Roland van Wijnen said PPC’s management team has made significant progress in implementing a sustainable capital structure and improving the group’s investment outlook, including by reducing the risks of the group’s balance sheet by eliminating its possible obligations regarding PPC Barnet.
“This helps clarify what has been a significant surplus for the group and should restore investor confidence in the group and free up management time to focus on core operations and other long-term strategic initiatives,” Van Wijnen said.
PPC shares responded positively, rising 18.23% on Wednesday to close at Rand 2.40.
Peregrine Capital Executive Chairman David Fraser said that PPC’s update is obviously very positive and that PPC’s new management team has “managed to remove a cornerstone that has been around this company’s neck for two years. or three years ”.
“A lot of the work they did was correcting the mistakes of the previous management team.
“It’s great to see a former South African industrial company starting to regain some strength,” said Fraser.
“They’ve been in the doldrums for too long, but I think it’s still a compelling story.”
Fraser said the key is the fact that the South African gears seem to be going down pretty quickly and that if PPC has a few more months of robust trading, South Africa’s debt burden will quickly be reduced to “a level of. very comfortable gear ”.
“I don’t see the need for a capital raise as long as PPC gets a few more months of trading as we’ve seen recently.
“I am very excited about the prospects for PPC,” he added. “Obviously the share price is responding well, but I certainly think there is probably more to come.”
PPC reported that South Africa’s debt increased from Rand 1.92 billion at end-March 2020 to 1.64 billion Rand at end-February 2021 and that the group’s 11-month free cash flow at end-February 2021 is between 90% and 95% higher. than the previous comparable period.
The group said that given the improvement in financial performance and the reduction in debt levels, it is in good standing with its lenders, with sufficient margin in existing facilities to meet its operational needs.
Van Wijnen said the group has experienced the positive impact of improved cement sales, cost reduction measures, improved working capital management and cash preservation measures implemented. works during the 11 months until the end of February 2021.
“Double-digit period-over-period growth was recorded in cement sales from July 2020 to February 2021 despite new restrictions related to Covid-19 in some markets.
“Our ability to respond to the sharp increase in demand following the relaxation of containment restrictions at the start of fiscal 2021 has resulted in a significant improvement in the group’s financial performance,” he said.
PPC reported that the group’s revenue increased 7% period-over-period for the 11 months to the end of February 2021 and 14% for the five months to the end of February 2021.
He said this was mainly due to the high demand for cement in South Africa.
PPC said the group’s EBITDA benefited from increased cement sales and tight cost control, increasing 25-30% over the 11-month period to the end of February and 45-50% over the five-month period to the end of February.
Settlement agreement in the DRC
With respect to the DRC, PPC reported that it had reached a settlement agreement with PPC Barnet’s lenders ending their right of recourse against PPC Group and removing a potential liability of approximately $ 175 million from the balance sheet of the group and significantly improving its financial situation.
The deal will come into effect once PPC pays a final deficit settlement amount of $ 16.5 million, which it expects to do in early April.
PPC also agreed to terms to restructure the debt of PPC Barnet, which was converted into a combination of senior debt reinstatement and PAYG preferred stock.
The group said the deals safeguard PPC from future economic risks to DRC operations and effectively direct the company’s economy to PPC Barnet lenders.
PPC will manage the business on behalf of the PPC Barnet lenders under a management agreement for an initial term of five years for a fee, allowing PPC to recover its costs over the term of the contract.
PPC will retain both an ordinary and a preferred interest in PPC Barnet.
The group added that PPC Lime’s structured sales process continues to progress well, with shortlisted parties having completed due diligence and binding offers due in early April.
PPC said it will assess these offers in the context of creating shareholder value and goals, and if any of the offers are acceptable, reach definitive sales agreements by the end of May.