Durban - Pioneer Foods shares dropped nearly 5 percent on Friday after the company warned its shareholders that the country’s sovereign credit downgrade could impact on its expansion plans.
Pioneer Foods fell 4.38percent to R169 after the group withdrew a cautionary expansion plan it announced in March following Standard & Poors’ and Fitch decisions to cut the country’s status to junk this month.
At the time, the company said it was exploring a material transaction which could have an effect on the share price if implemented.
It said the move was in line with its strategic direction.
“Shareholders are advised that while the company is exploring the merits of the proposed transaction, no final decision has been taken by the company’s board, and accordingly shareholders should exercise caution when dealing in the company’s securities until a further announcement is made.”
But on Friday, Pioneer Foods warned its shareholders that due to the recent sovereign debt rating downgrades in South Africa and the potential for additional downgrades,
“the parties have decided to discontinue negotiations at this time.
Accordingly, caution is no longer required to be exercised by shareholders when dealing in the company’s securities.”
In January the group indicated that it would remain committed to the planned fixed capital investment programme, acquisitive growth and sustained cost and efficiency focus to realise growth by 2020.
Pioneer Food was unable to shed more light on the latest developments.
BayHill Capital equities trader Jordan Weir said the downgrade would lead to more companies adopting a wait and see attitude in terms of concluding deals.
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“The global economy is currently under various economic and political pressures, which could possibly impact or alter business decisions that may have been made a few years back.
"The year 2017 will be all about the right balance and timing of business decisions. In times like these, it is more than likely prudent for companies to err on the cautious side of the deal-making fence, while being cognisant of any opportunities that may arise given South Africa’s volatile political and economic climate,” said Weir.
Pioneer Foods is a producer and distributor of branded food and beverage products to wholesalers, retailers and informal traders.
Its brand portfolio consists of Weet-Bix, Liquifruit, Ceres, Sasko, Safari, Spekko and White Star. But Weir said Pioneer Food could regain its spark in the future.
“AT Kearney released their latest Foreign Direct Investment Confidence report and South Africa did in fact surprise coming in as the fourth most attractive country for foreign direct investments on the African continent and 25th in the world. A quiet confidence in South Africa still remains,” he said.