Big four banks gain stakes in AfriSam as firm converts its debt to equity
CAPE TOWN – South Africa’s big four banks had supported construction materials company AfriSam by converting the majority of its debt into equity, creating a more sustainable capital structure for the business, a statement said on Wednesday.
Existing shareholder debt has also been converted into equity. The capital restructuring transaction resulted in the four largest banks having individual equity stakes in the business that is meaningful but not controlling stakes. AfriSam would reduce its total debt to R2.1 billion from R8.6bn.
AfriSam has been operating in challenging market conditions over the last five years. The business has been confronted with multiple pressures: a significant decrease in demand for its products, whilst supply has increased as a result of new competitors including a sharp rise in imports and key costs have risen at rates that are well above inflation.
Despite this AfriSam continued to generate cash, meet its supplier and regulatory obligations, invest in its plants, its employees and customer relationships over the last half-decade.
However, the adverse market conditions resulted in a decline in earnings before interest, tax, depreciation and amortisation, cash flow generation and the business’ ability to service its long-term debt obligations.
Considering this, the restructuring of AfriSam’s long-term debt obligations had been a key focus for AfriSam’s board, management, shareholders and its current funders.
The capital structure change necessitated the reconstitution of the board, including Phuthuma Nhleko stepping down as chairperson, after guiding the business for eight years. Eric Diack, who has vast experience in construction and heavy industrial businesses, has assumed the role of the executive chairperson from May 1.
“The transaction untangles most of our long term balance sheet limitations; it places AfriSam on a better footing in its initiatives to as far as possible protect jobs and support government’s socio-economic objectives. It also provides some cash flow relief as we tackle the highly abnormal challenges created by the Covid-19 pandemic,” says Rob Wessels, the acting chief executive of AfriSam.