JSE-listed PPC has been hit with a downgrade and had its all credit ratings placed on CreditWatch with negative implication by ratings agency Standard & Poor’s (S&P’s) Global Ratings.
S&P’s this week rated the cement maker’s long- and short-term national scale corporate credit ratings downwards to zaBB-/zaB from zaA/zaA-2 respectively.
While the ratings agency deemed PPC’s business risk profile to be “fair”, the “severity and timing” of the “unexpected” rating has pushed PPC to fast-track its capital raising plans to accommodate provisions for a potential redemption of R1.75-billion in notes.
“As a result of the ratings action, upon and subject to issuance of a redemption notice, noteholders of outstanding notes issued under PPC’s domestic medium-term note programme may elect that the company redeem their notes at par plus accrued interest,” PPC pointed out.
The company was working to implement a funding strategy that incorporated a capital raise able to deal effectively with the impact of a continued low-growth environment, as well as the potential redemption of the notes and the strengthening of the balance sheet.
PPC last week announced plans to raise between R3-billion and R4-billion in gross proceeds through a rights issue, for which discussions with various potential underwriters were currently under way, to lower its debt levels.
“Before taking into account the proposed capital raise, PPC’s debt levels, including nonrecourse debt, are anticipated to peak at between R10-billion and R12-billion in the 2017 financial year, but will reduce as cash flow from the expansion projects is achieved,” it explained.
Currently, PPC’s South African debt is R5.8-billion, while the ring-fenced project finance debt relating to the rest of Africa expansion projects is R3.8-billion.
“The company will also consider such other forms of equity capital raising as may be appropriate in light of its position, market conditions and other factors,” the group added.
The company said it would provide further details on June 14, when it released its results for the 2016 financial year.
TRADING UPDATE
Meanwhile, PPC expected its basic headline earnings per share (HEPS) for the six months to March 31 to be 10% to 20% lower, at between 48c and 54c, than the HEPS of 60c posted in the six months to March 31, 2015.
“The expected decline in basic headline earnings is attributable to a weaker trading environment, as well as higher finance costs and depreciation owing to the commissioning of the Rwanda operations and an increase in gross borrowings, all of which has been partially offset by the improved cost performance,” the company pointed out.
The disposal of certain noncore assets realised a profit before tax of R100-million, which led to an expected 30% to 40% rise in basic earnings a share from 52c during the six months to March 31, 2015, to between 68c and 73c apiece in the six months to March 31, this year.
Further, the company expected improved efficiencies and cost savings to bolster earnings before interest, taxes, depreciation and amortisation for the six month period under review.