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Cape Town - Cement maker PPC on Monday said it is in advanced stages of preparation to execute a capital raise, but warned of a probable credit rating downgrade.
This sent its share price into a tailspin, with the share dropping over 19% before pulling back to trade 11.15% lower at R12.19 by 12:00. This was the biggest one-day drop on record for South Africa's biggest cement maker.
PPC said the proceeds from its capital raising will be used to reduce current debt levels and fund existing committed expansion capital expenditure and investment projects.
It said the intended quantum of the proposed capital raise will be not less than R3bn and not more than R4bn.
PPC also warned that arising from its current and ongoing engagement with a particular credit ratings agency, the cement maker has reason to believe that the outcome of this engagement is a probable credit rating downgrade of PPC.
It advised shareholders to exercise caution when dealing in PPC securities until the full terms announcement in relation to the capital raise is published.
The company expects to release an announcement setting out the key terms of the capital raise when it releases its 2016 financial year end results on June 14.
PPC has faced upheaval since the resignation of former CEO Ketso Gordhan in September 2014 and the departure of chairperson Bheki Sibiya early this year. The group has also faced challenges of low infrastructure spend, tough competition, low cement prices and the dumping of cheap cement in its home market.
Sonia Baldeira, a construction and materials analyst for Bloomberg Intelligence, told the news agency the risk of a downgrade may have come as a surprise to investors. By contrast, “a capital raising would be healthy for the company,” she added. “It’s necessary to have more capital for the increase in capacity and it will strengthen the balance sheet".
Bloomberg reported PPC has a target of doubling the size of the business every 10 years. The company is developing projects in countries including the Democratic Republic of Congo, Zimbabwe and Ethiopia, and plans to boost capacity to 12.7 million metric tons a year in 2018.
As a result of the expansion, PPC’s debt is set to peak at as much as R12bn in the 2017 fiscal year, the company said in a presentation in March. That compares with R8.2bn at the year of the 12 months through September 2015, according to Bloomberg.
