PPC seeks R4bn to repay bank debt

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That happened after PPC failed to convince bondholders to accept a 90-day delay to the redemption that would have come with an interest sweetener. The firm only had R460m on hand at the end of March, so the redemption has been achieved with a lot of debt from a consortium of the big four banks.

Its auditors were unable to conclude that it was a going concern as at the end-March results, issuing a disclaimer opinion. To survive, PPC is raising R4bn from shareholders, an amount roughly equivalent to its market capitalisation, to pay off debt from the banks.

It has managed to get the consortium of banks to underwrite the capital raise, so the banks may effectively swap their debt for equity in the company. That is, if shareholders don't follow their rights.

The firm has yet to publish the details of the rights offer, but it is inevitably going to be priced at a discount to the market price of R6.67/share, a far cry from the R31/share it was being traded at its September 2014 high. The size of the discount is critical to the success of the capital raising - a steep discount means existing shares will be heavily diluted. However, that also encourages shareholders to follow their rights to maintain an interest in the company.

PPC's travails come after those of Lonmin, which went through a dramatic rescue by its banks in late 2015. In Lonmin's case, existing shareholders were effectively obliterated, with the issue discounted 94% from the share price before it was announced. Despite the huge discount, 30% of shareholders still rejected the offer.

The underwriters in that case - Standard Bank, JP Morgan Cazenove, and HSBC - ended up owning 3.82% of the firm.

Unlike Lonmin, however, PPC is profitable, delivering 69c/share for the past six months, putting it on a trailing 12-month price-earnings ratio of just more than eight. It does have positive cash flows and looks cheap at that ratio, a situation quite unlike Lonmin, which was unprofitable.

PPC's headaches have arisen because of a large capital investment programme that has seen it building new plants in Zimbabwe, Ethiopia, the Democratic Republic of Congo and Rwanda, funded by debt. Those are slowly coming on stream, and it is hoped that they will deliver the operating performance necessary to justify the capex. The banks that backed Lonmin have made a healthy profit on being reluctant shareholders - the share price has doubled since the capital raising, as the platinum producer has delivered on an aggressive cost-control programme.

The shareholders that rejected that rights offer will be ruing their decision. For PPC shareholders, the scenario looks better than it did in Lonmin's case. Nervous bankers will want a big discount to ensure shareholders follow their rights, but in this case, I doubt a big discount will be necessary.

The Guptas' Oakbay Resources, a JSE-listed vehicle holding uranium reserves and a small coal operation, might see its listing face an ignominious end. The JSE is considering suspending Oakbay because it has been unable to secure the services of a JSE sponsor.

There are 29 JSE-approved sponsors and every single one seems to have turned its nose up at Oakbay, after Sasfin dumped the company in June.

It is a rather unprecedented situation. Oakbay says it has managed to come up with a workable solution to the fact that no major bank will service it, and has secured the services of SizweNtsalubaGobodo as an auditor after KPMG dumped it.

The lack of a JSE sponsor might not be its only obstacle.

The listing is a blight on the JSE's board. The company has a notional market cap of R18.6bn, implying it is worth four times PPC, which is, to be polite, fanciful. It consists of uranium reserves that the two most recent owners have described as worthless, and a coal operation injected into the company last year to provide the cash flows needed to keep the doors open.

An average of R1,000's worth of shares change hands per day. Mysteriously, those traders have a habit of placing orders right at the end of the day in such a way that the closing price remains high. Conveniently, that ensures that the Industrial Development Corporation can boast of a paper profit on the shares it took in the company for converting a R250m loan to equity.

The corporation holds lots of security for its support for the company and I suspect a delisting will trigger covenants allowing it effectively to take over.

Source: Business Day