Pretoria – Cement manufacturer AfriSam and the country as a whole have paid heavily for the delay in restructuring AfriSam.
What might have been resolved in two meetings took three years because of the personalities involved, personal interests and a lack of trust, said Elias Masilela, chief executive of the Public Investment Corporation (PIC) which, since his appointment in February last year, has headed the bailout effort.
The PIC manages the Government Pension Fund’s investment portfolio. This fund owns practically the entire interest in AfriSam after the conversion of AfriSam’s PIC debt into shares.
That was the first step in reducing AfriSam’s crippling indebtedness and saving it from collapse.
The three shareholders – the PIC (previously 20%), Swiss cement giant Holcim (15%) and empowerment group Bunker Hills (38%) – and Pembani, one of the major creditors, have been supported throughout by financial advisers and legal gurus, all highly paid experts. That and the loss of market confidence owing to the delay have caused significant expense that could have been avoided, says Masilela.
At the end of the process denunciation unfortunately followed, which damaged the confidence of foreign investors in South Africa when the PIC takeover was labelled as nationalisation. “Black economic empowerment and nationalisation were confused,” Masilela averred.
Masilela says that from the first day he was involved in the negotiations he noted a lack of confidence between the parties.
The PIC had hoped to reach agreement by August 2011, before the large debt repayment on February 4 this year, which might have crippled AfriSam. August turned into December.
Those involved had to forget about Christmas and hardly slept, says Masilela.
The turning point came on December 28. The PIC invited Holcim to South Africa for negotiations and on that day for the first time realised that Holcim had so far made no value write-downs with regard to AfriSam. The PIC had adjusted all its books a couple of years earlier.
Holcim’s stake in AfriSam was worth much less than it had thought. This would make a solution incredibly difficult to find.
Masilela persuaded the Holcim representatives, one by one, that an urgent compromise would be in everyone's interest.
Holcim’s biggest concern was that its stake would be reduced to around 2%, and about its future in AfriSam.
The PIC made it clear that this was a transition stage and that it was prepared to dilute its interest later on. It was not its role to manage a cement factory.
After the PIC had made it clear that it did not wish to edge out other shareholders, progress was made.
On 09:00 on Sunday January 15 the parties reached agreement.
On Monday morning the news broke that Holcim was writing off some R3.5bn of AfriSam’s value. As part of the agreement the PIC injected another R3.3bn (apart from the earlier R6bn). The company's debt was reduced by R15bn to R6.5bn.
Masilela said it was as though a huge weight had been lifted from his shoulders. AfriSam constituted only half a percent of the PIC’s investment portfolio, but it had occupied around 20% of management time. He was now able to focus on the job for which he had been appointed.
The company represents a third of the country's cement production capacity, it has 1 800 employees and plays a large role in the country's economy. The PIC could not allow it to collapse.
“I don't think we would have kept our jobs if we had allowed AfriSam to go under!
“Fortunately our mandate permits what we did. It is twofold – namely to give the best return on investment, but also to contribute to the socio-economic development of the country,” said Masilela.
After February 4 Pembani, under the chairmanship of Phuthuma Nhleko, the former chief executive of MTN, will take up a 38% stake. AfriSam’s indebtedness to it will be converted into shares.
The advent of Pembani means that AfriSam retains its empowerment status and the appointment of Nhleko – with his demonstrated success in the African market, especially, is a massive gain, declared Masilela.
Holcim and Bunker Hills still have the option of acquiring another 14% at a cost of R940m, said Masilela. He believed they had already formed a joint venture with this in mind.
Pembani’s stake could be diluted to 29% and that of the PIC to 57%.