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PPC to raise more capital after ratings downgrade

Johannesburg - South African cement company PPC will increase the scale and speed of a planned capital-raising exercise to reduce debt after a credit rating downgrade and as it braces for an expected drop in half-year profit, it said on Tuesday.

PPC, which has pushed deeper into the rest of Africa as profit has slumped in its domestic market, is now grappling to service dollar-denominated debt after the rand lost more than a third of its value over the past year.

Shares in PPC extended losses to a 13-year low of R9.30 on Tuesday after it confirmed that Standard & Poor's (S&P) had downgraded the company's long and short-term South African national scale corporate credit ratings by four notches to zaBB- and zaB respectively.

PPC announced last week that it is seeking between R3bn ($190m) and R4bn from shareholders to reduce debt.

"The severity and timing of this (S&P) ratings action was unexpected and has therefore compelled the company to accelerate its capital-raising plans," PPC said in a statement, adding that it would also increase the amount it aims to raise.

PPC also said that it expects basic headline earnings per share for the year to March 31 to be down by 10-20% year on year, citing a weaker trading environment and higher finance costs.

PPC shares recovered slightly to R9.81 by 11:03 GMT, still down 4.5%.

The main reason for the slump is the ratings downgrade, said said Sibonginkosi Nyanga, an equity research analyst at Momentum S.P. Reid.

"There were chances that if they didn't do this capital raise they were going to breach covenants. Guys in the market are nervous about the ratings downgrade mostly," Nyanga said.

Debt is expected to climb this year, but will peak at between 10 billion rand and 12 billion rand in 2017 and then reduce as projects in Zimbabwe, the Democratic Republic of Congo and Ethiopia start generating cash, PPC said.

Long-term borrowing was R6.7bn at September 30, but debt on projects outside South Africa has since increased by more than half to R3.8bn.

"The increase in project finance debt is a result of a depreciation in the rand exchange rate to the dollar and further drawdowns on existing facilities as the rest of Africa projects near completion," the company said.

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