Key message: The removal of the contingent liabilities for the DRC debt is a significant step for PPC. This has allowed a deferment (and possible review) of a potential capital raise in South Africa to September 2021.

  • PPC released a refinancing and operational update for the five months to February 2021. Significantly, PPC has been able to remove the contingent liability for the DRC (PPC Barnet) debt through an agreement with PPC Barnet’s lenders.
  • This removes the direct link of US$175m worth of debt to PPC’s balance sheet. The agreement is effective on a final deficiency payment of US$16.5m to be made in early April 2021.The US$175m in senior debt in PPC Barnet will be restructured to include i) Converting a portion of senior debt to a pay-as-you-go preference share, ii) PPC capitalising shareholder loans to PPC Barnet to ordinary and preferred equity and iii) PPC will continue to operate the plant on behalf of the lenders for an initial five-year term.
  • Habesha (Ethiopia): while the plant is positive on an EBITDA basis, a financial restructuring plan is being developed. PPC will consider its options and has no obligation to support or invest in the business.
  • PPC International capital raise: no longer required, but the process is still underway.
  • PPC Lime sale: binding offers are expected in early April 2021 from shortlisted bidders.
  • PPC capital raise: PPC had committed to a capital raise of not less than R750m by 31 March 2021 subject to the resolution of the DRC debt. Lenders have agreed to defer the timing to September 2021 and review the need for a capital raise based on a de-gearing of the South African businesses to a 2x net debt: EBITDA level. We believe the probability of a capital raise is now very low.
  • Operational performance still strong: double digit growth in cement sales for the Group has extended from July 2020 to February 2021. PPC has been able to respond well to increased demand where peers have struggled.
  • With a contingent liability now removed from PPC’s balance sheet, we can normalise our valuation and increase exit multiples. We increase our Target Price to R4.37 (from R2.94).

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