The three bidders stalking PPC, SA’s largest cement producer, must all be looking closely at the debt on PPC’s balance sheet. The three bidders are Afrisam, another SA cement producer with a debt-laden balance sheet, Toronto-based Fairfax, which operates a range of companies, and Dangote Cement owned by Aliko Dangote, apparently Africa’s richest businessman.
The PPC story started last year when the company successfully raised R4 billion from shareholders at a time when none of the major banks would contribute to what looked like a debt calamity.
Alas, the R4 billion was not sufficient to solve PPC’s high debt level of over R8 billion. Shortly after the rights issue, the company came out with quite shocking final figures that left many shareholders gasping, as they thought the money raised would solve PPC’s debt problem.
The main problem behind PPC’s dilemma is that the cement market is oversupplied by 40% and is expected to remain this way for the next 10 years.
Enter Afrisam, who have all the similar debt problems of PPC and believe the one way both companies can survive is to combine forces over cement production and outlets.
What is particularly interesting about both these companies is that they have the massive cash king of the PIC as major shareholders to both camps. There are those who believe that the PIC are manoeuvring with big stakes in both companies for a cash bid that will take the PIC out of its billions of debt to both companies.
Then there is Fairfax, with its R2 billion offer, who surprisingly wants Afrisam to be involved in its bid for PPC. If this bid should go ahead, the PIC would free up many billion rands’ worth of debt as their shares would become part of the deal.
A complication is the potential bid from Africa’s richest man, Aliko Dangote, who is in the Nigerian cement business and wants to expand into South Africa.
Where it will all end is anybody’s guess, but with the PIC potentially pulling the strings, the best deal might well be for them.
Meanwhile, PPC’s shares are trading well above R6 as they wait for the next move by any of the potential bidders.
credit: Graph Provided by Sharenet Advanced Online Charts
Jeremy Woods trained for three years as a journalist on the Herts Advertiser, St Albans, in the U.K. Once qualified, he left England to work as a crime reporter on the Vancouver Sun in Canada. After three years, he worked for the Los Angeles Times as a trainee financial journalist, spending most of his time reading company accounts and finding publishable stories in them. He moved to South Africa and for the last five years in journalism worked for the Sunday Times, Business Times, as Investment Editor. He has also published a financial thriller called "Special Payments", which was a best-seller on publication, and optioned three times for a film.