JSE-listed cement manufacturer PPC Cement has made positive progress on its restructuring and finance programme, with the objective of implementing a sustainable capital structure.
PPC has received funding confirmation from South African lenders, who the company says will provide various short- and long-term facilities under existing agreements.
In this regard, PPC has concluded an overarching term sheet with its two primary South African lenders that provides for all short-term banking facilities that were in place at financial year-end, and will remain in place under similar terms until September 2021.
Additionally, all long-term facilities that were in place at financial year end will also remain in place, with the extension of tenor of one of the facilities for an additional six months.
PPC also received a deferral of scheduled interest and capital repayments on long-term facilities until March 2021, and the company’s security position is set to be enhanced through a security pool arrangement.
The company also now has a waiver and condonement of covenant breaches under existing facilities and ongoing compliance with amended covenants, including earnings before interest, taxes, depreciation and amortisation (Ebitda) and liquidity headroom.
PPC made a commitment to reduce the levels of gearing in South Africa through a combination of a capital raise and asset sales. Any capital raise is conditional on the implementation of the other programme steps.
The group has started the process of formalising the term sheet and security arrangements, and PPC has also signed a new working capital facility with its third South African lender under similar terms and conditions to the above, providing access to ongoing liquidity until December 2021.
Further, PPC Barnet has negotiated a term sheet with its lenders in the Democratic Republic of Congo, which provides for a standstill to allow for the implementation of a long-term restructuring plan.
The term sheet provides for an initial standstill period to December 31, 2020, with the possibility of an extension to March 31, 2021, subject to certain extension milestones being met related to the long-term restructuring plan.
Additionally, the company has a forbearance of unpaid principal amortisation to date and scheduled principal amortisation until the end of the standstill period.
Unfortunately, negative covenants are customary in an arrangement of this nature, says PPC, and include restrictions on incurring additional debt outside of the existing group facilities, dividend restrictions, capital expenditure remaining in line with current budgets and certain financial conduct undertakings with respect to other group companies subject to final credit approval of the PPC Barnet lenders.
The group will start the process of formalising the term sheet and expects it to be completed in due course.
The conclusion of the agreements are two important milestones towards achieving the project’s overall objectives, and PPC says it enables the company to progress to the next phase of the project, being the implementation of a long-term restructuring plan for PPC Barnet and relieving PPC of its contingent obligations.
The restructuring plan includes raising capital in PPC International to enable a sustainable capital structure, to fund certain capital investments in the international businesses and support the restructuring claims of PPC Barnet lenders.
As a final step, and in line with the commitment given to the South African lenders, consideration will be given to PPC raising capital from its shareholders by way of a rights issue in order to strengthen the balance sheet and enable the broader restructuring.
The project is still targeted for completion by March 31, 2021.