PIC swoops on AfriSam

2011-12-10 14:14

Phuthuma Nhleko will bring cash, skills and market access to cement company

Two key shareholders of AfriSam have been dealt a severe blow after a consortium of creditors led by Phuthuma Nhleko concluded a deal on Friday with the Public Investment Corporation (PIC) that will end their control in South Africa’s second-largest cement producer.

Bunker Hills and Swiss group Holcim are destined to lose their control of AfriSam after Nhleko’s Worldwide Africa Investment Holdings (WAIH) and senior creditors reached an agreement with influential shareholder the PIC, which will result in AfriSam’s R19 billion gigantic debt being reduced by R8.4 billion.

Infighting between three AfriSam shareholders had led to fears that the company will default on R11 billion debt due to be paid to senior debtholders before the end of January next year. In one camp, there was black investor Bunker Hills and Holcim, which jointly controlled 52% of AfriSam.

This camp resisted a restructuring of the cement producer that would lead to this shareholding being wiped out.

In the other camp, there was the PIC, which owns 20%, which wanted senior creditors like WAIH to convert their debt in AfriSam into equity.

The PIC stepped up pressure on its opponents by converting its preference shares in AfriSam into ordinary shares in a move to seize control of the firm. Bunker Hills prevented the move through a court interdict.

But last week, the North Gauteng High Court in Pretoria ruled in favour of the PIC to convert R4.7 billion worth of its preference shares in AfriSam into ordinary shares. The PIC had demanded the R4.7 billion be paid back by Bunker Hills, which it borrowed from the fund manager to acquire a controlling stake in AfriSam.

The conversion will result in the PIC controlling more than 99% of the cement-maker and will virtually wipe out the shareholding of Bunker Hills and Holcim. Bunker Hills is appealing the ruling, but Holcim said this week that it was assessing the situation and would not comment further.

PIC chief executive Elias Masilela had told City Press earlier in the week that it was considering bringing in WAIH as its strategic partner in AfriSam once it had seized control of the company.

“They are one of the considered strategic partners,” he said.

Bunker Hills has been fighting off WAIH’s advances on AfriSam and has even accused the company, led by former MTN chief executive Nhleko, of trying to cannibalise black investors in AfriSam. An initial attempt by WAIH to buy a controlling stake in AfriSam was opposed by Bunker Hills.

WAIH then bought a portion of AfriSam debt in the market, but it wants to convert the debt into equity. The R8.4 billion reduction in AfriSam’s debt
comprises the PIC’s conversion of its R4.7 billion preference shares and WAIH’s conversion of its R3.7 billion debt. At this stage it is not clear how much equity WAIH will hold in the cement-maker.

Nhleko’s ambition is to expand AfriSam operations across Africa. He has extensive contacts on the continent, which he made while he presided over the expansion of telecoms giant MTN across Africa. Masilela said WAIH’s vision dovetails with the PIC’s African investment strategy.

The state fund manager has been given the green light by government to invest 10% outside of South Africa of the R1 trillion it manages on behalf of the state pension savers. Half of the money designated for investment outside of South Africa will be invested in the rest of Africa.

Patuxolo Nodada, the managing director of Siga Capital, said Nhleko’s involvement in AfriSam could have positive financial ­­­spinoffs for future shareholders of the cement company. He said the skilful dealmaker was bringing management expertise, cash and access to the markets – three vital ingredients that AfriSam needs if it wants to be an African giant.

“Currently, Bunker Hills shareholders have debt and they can’t sleep peacefully because they don’t know where the money is going to come from to repay the debt.

Even if they are left with 1% of AfriSam, the value of this 1% is going to be five times bigger in five years if Nhleko is allowed to lead the company,” Nodada said.

He added that he would not be surprised if Nhleko was roped in as an executive chairperson to lead AfriSam’s charge on the continent.

“He has a second chance to build another African giant. For the next 25 years, cement is going to be a core ingredient in the building of infrastructure. I think once he comes in, we will see a big management reshuffle at AfriSam,” Nodada said.

Masilela said the PIC would sit down with Bunker Hills and Holcim to give them an opportunity to invest in a restructured AfriSam. This means that the companies will have to buy new shares to remain invested in AfriSam.

“The restructuring is about money. If the shareholders have sufficient confidence in AfriSam, they must put in more money,” said Masilela.

Masilela added: “We have observed that over the years, delegating control to others causes problems. We want to control the company until it is on an even keel and then allow the strategic partners to take the lead.

“Ultimately, we are not a cement company, but we want to influence decision-making.”

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