According to John Bowker, PPC Ltd. shares dropped 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 R4 billion ($254 million).
The stock declined 18%, the biggest drop on record, to R11.25 in Johannesburg on Monday. The shares are down 27% for the year, compared with a 3.8% gain on the FTSE/JSE Africa All Share Index.
The proceeds of the R3 billion to R4 billion 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 DRC, Zimbabwe and Ethiopia, and plans to boost capacity to 12.7 million metric tons a year in 2018.
