S&P Global Ratings has reduced PPC’s rating to at least one notch above non-investment grade as falling cement demand and stiff competition dampen the potentialities of the organization’s SA business.
“The downgrade follows weaker-than-anticipated profitability in PPC’s South African enterprise coupled with ongoing macroeconomic and forex regime uncertainty in Zimbabwe,” S&P stated on Tuesday.
“As an end result, we assume an increase within the group’s debt to EBITDA (earnings before interest, tax, depreciation, and amortization), tighter covenant headroom, and potentially add a greater reliance on shorter-term working-capital centers to meet upcoming debt maturity duties, if the organization is not able to extend its debt adulthood agenda,” it said.
S&P stated that because of declining demand for cement and accelerated opposition in SA, PPC’s debt-reduction potentialities in the local market have been dampened.
In the 9 months ended December, PPC’s Southern African enterprise extended cement prices as a good deal as 2%, whilst cement volumes had been down 3%. Between January 2018 and November 2018, total cement imports multiplied 80%, PPC said.
S&P stated there will be as plenty as 35% overcapacity in the nearby cement marketplace “thinking about extra lots from imports and nearby blenders, which has eroded producers’ pricing power.”
PPC stated that on Tuesday, the downgrade is symptomatic of difficult situations inside the nearby cement market and the impact of the Zimbabwe economy’s poor kingdom.
“The above induced the assessment of S&P on PPC credit score for the reason that Zimbabwe contributed 30% to PPC Group EBITDA in the 2018 monetary year and sixty-three% of the cash balance for 2018,” PPC said.
S&P said from a trading and monetary reporting attitude, macroeconomic, and currency regime uncertainty in Zimbabwe will have excessive negative implications for PPC’s Zimbabwe enterprise within the brief term.
PPC said it’s far comfortable with its liquidity and may manage the volatility inside the marketplace. The organization, which has R5.2bn in debt, frequently controlled and reviewed its debt adulthood profile.
In reaction to SA’s challenging macroeconomic climate, the business enterprise is imposing fee will increase regionally.
“We are seeing the impact of the slowdown in the financial system, specifically in the construction and constructing industries, leading to lower volumes and profits. This ends in problems in phrases of repaying debt in the brief time period because there aren’t sufficient unfastened coins float,” Ron Klipin of Cratos Wealth stated on Tuesday.
Klipin said the cement maker’s debt is overtaking its Ebitda. “That is why there may be a hazard of breaking the debt covenants,” he said.
Klipin said PPC has also taken pressure from the inflow of less expensive imports, mainly in its coastal areas.
“Also, the brand new Zimbabwe currency has depreciated extensively against the rand, which affects the transfer earnings to SA,” he said.