Johannesburg - Borrowing costs for South Africa’s Eqstra Holdings are soaring as the mining-supplies company struggles to refinance debt of more than eight times its market capitalisation amid a commodity slump.
Yields on R100 million ($6.8 million) of securities due in April 2018 have climbed 158 basis points since the start of the year to a record 13.34 percent on Wednesday. The shares slumped 8.1 percent to R205 by the 5pm close in Johannesburg, giving the company a market value of R831 million.
Johannesburg-based Eqstra, which imports and distributes industrial, construction and mining equipment, has R1.91 billion of bonds maturing in the next two years, according to data compiled by Bloomberg. Total debt, including bank loans, reached R7.55 billion as of December 31, the company said in a stock exchange statement on March 1.
“The first priority is finalising the refinancing of the bank debt and then obviously we’ll deal with the capital market maturities,” Group Treasurer Henk Lindeque said by phone from Johannesburg. “That’s a year away so there’s still a lot of things that can happen.”
South Africa’s mining industry, which accounts for more than half of its exports, has been hit by a global slump in commodity prices, exacerbated by signs of slowing growth in China, the world’s second-largest economy and the biggest importer of the nation’s raw materials. The industry has also suffered from insufficient electricity supply and output has contracted for the last six months to February.
Eqstra faces “significant refinancing risks and liquidity challenges over the next 12 months due to limited free operational cash flows and access to debt capital markets,” S&P said on April 26, when it cut the company’s credit rating and placed it on a negative watch, signifying that more downgrades could follow.
Bank loans
The company raised almost R450 million by selling fixed- and floating-rate bonds in 2013, and planned to use the money to pay down commercial paper and bank debt. Those bonds are due between November 2016 to October 2018. Capital-market debt constituted about 25 percent of the company’s liabilities, with the rest made up of bank loans, Lindeque said.
“We’ll refinance that at the appropriate time and funding instrument,” Lindeque said. “We’ll either refinance it through the banks, through some other funding instrument, through the capital market, or we might repay it.”
Eqstra said on April 8 it had received an “expression of interest from a third party”, advising investors to exercise caution when trading its shares.
BLOOMBERG