PPC Ltd. shares plunged after South Africa’s biggest cement maker said talks with a credit-ratings agency will probably lead to a downgrade and the company is preparing a capital raising of as much as 4 billion rand (US$256 million).
The stock declined as much as 16%, which on a closing basis would be the biggest drop on record, and traded 11% lower at 12.15 rand as of 10:50 a.m. in Johannesburg on Monday. The shares are down 21% for the year, compared with a 3,6% gain on the FTSE/JSE Africa All Share Index.
The proceeds of the 3 billion rand to 4 billion rand capital raising will be used to reduce debt and fund expansion plans, PPC said in a statement. The company will advise shareholders about the final decision of the credit agency, which it didn’t identify, when it has the information.
The risk of a downgrade may have come as a surprise to investors, Sonia Baldeira, a construction and materials analyst for Bloomberg Intelligence, said by phone from London. 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.”
PPC is expanding in Africa to counter tough competition and falling prices in its home market, and 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 tonnes a year in 2018.
As a result of the expansion, PPC’s debt is set to peak at as much as 12 billion rand in the 2017 fiscal year, the company said in a presentation in March. That compares with 8,2 billion rand at the year of the 12 months through September 2015.-Bloomberg