Concerns about PPC’s high debt levels ‘unwarranted’

PPC's Dwaalboom production line. The company says it is comfortable that it can handle and repay all its debt. Photo: Supplied

PPC's Dwaalboom production line. The company says it is comfortable that it can handle and repay all its debt. Photo: Supplied

Published Apr 24, 2015

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Roy Cokayne

PPC has played down concerns about its high debt levels, despite admitting that it would probably exceed covenants agreed with its bankers.

Darryll Castle, the chief executive of the listed cement and lime producer, said the combined debt of the group would peak at between R10 billion and R12bn by 2017, which looked like a high debt equity ratio.

However, he stressed the non-recourse debt related to PPC’s Africa expansion strategy had to be excluded from the group’s combined debt because the debt in its four projects in Africa were ring-fenced into the subsidiary company established for each project.

PPC is involved in four cement plant projects in Africa in Zimbabwe, Rwanda, the Democratic Republic of Congo (DRC) and Ethiopia.

Castle said PPC was quite comfortable it could handle and repay all its debt, but admitted that the company would probably in the future go through the debt levels agreed.

However, Castle stressed that this would not result in the company triggering a capital raising or something else. All it would trigger would be a discussion that the company was already having with its bankers about sensible covenant ratios for PPC.

Castle said these covenants were set at a time when PPC did not have any debt outside South Africa and it was never envisaged that the company would be running projects outside the country.

“In a sense, those covenants are not relevant to the company and its capital structure today,” he said.

Castle said each African project was fully funded and there were various equity ratios in each project.

“The cash from South Africa is almost at an end and in all cases the debt has been secured and the debt is predominantly non-recourse debt and ring-fenced into the subsidiary projects in all four cases,” he said.

Castle said there was some residual recourse to PPC’s balance sheet in the DRC until there was technical completion of the project.

Castle said PPC’s Rwanda project plant would be commissioned in the second half of the year and was on budget and its completion within timing guidance previously given.

He said the Zimbabwean project, which involved the expansion of its existing business in that country, was on budget and “substantially on time”, although its completion was a few months behind schedule.

Castle said the DRC project was scheduled to be commissioned by the end of next year and was on time and budget. But the Ethiopian project had proven a bit more challenging.

He said PPC was a minority shareholder in the project but was in the process of increasing its shareholding to 51 percent. Once that was completed, it would have a robust look at the project.

“Our impression is that the project is running late and the cost may have increased, but we will do a full assessment of that in due course,” he said.

Castle said Algeria was an area of interest for PPC and it had partnership in that country and was considering two projects, the most important of which was with Hodna Cement Company. He said PPC was re-engaging with its partners to update and change agreements that had lapsed and would then look at restarting the feasibility on the project.

“Only at the end of the feasibility would we make an assessment on whether we would like to invest or not,” he said.

Shares in PPC rose by 0.94 percent to close at R17.23 yesterday, after earlier falling to R16.45, the stock’s lowest level in more than 20 years.

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