S&P said the ratings reflected its view that PPC’s underlying credit metrics were broadly stable.
In June 2016, S&P took what then PPC chief executive Darryl Castle described as “sudden and severe ratings action”.
This led to PPC accelerating and increasing the quantum of a planned capital raise to R4billion that was used to repay debt funders for a guarantee extended to PPC bondholders, an existing term facility that redeemed a PPC bond in March 2016 and the redemption of black economic empowerment (BEE) debt that matures in December and to strengthen its balance sheet.
S&P said in a report published on Friday that the relative stability in PPC’s earnings before interest, tax, depreciation and amortisation (Ebitda) and margins reflected a combination of improved volume growth in its higher-margin Rest of Africa operations, with subsidiaries in Zimbabwe, Democratic Republic of Congo, and Rwanda, and suppressed demand and margins in its cement and materials business in its South African home market.
S&P said the ratings also balanced the country-related risks that PPC faced, including those related to taxation, regulation, and cash repatriation. PPC’s capital structure and liquidity management remained prudent, with the group deleveraging over the past two years.
“Its improved capital structure and liquidity profile will help mitigate the adverse effects of cyclicality in the building materials industry, especially given the relatively depressed operating environment in South Africa,” S&P said.
S&P said its base case assumed PPC revenue growth of about 6percent to 8percent in its 2019 and 2020 financial year, driven by volume growth in the rest of Africa and growth in southern Africa reflecting marginal volume declines and slightly firmer prices.
It also assumed a PPC adjusted Ebitda margin of about 20percent in its 2019 and 2020 financial years from 19.5percent in 2018, capital expenditure of about R1.1bn in its 2019 and 2020 years in line with public guidance, and no dividend payments in the short term.
PPC last month reported a 114percent increase in headline earnings a share to 15c in the year to March from 7c in the previous year.
PPC shares declined 1.11percent on the JSE yesterday to close at R7.15.
- BUSINESS REPORT