S&P maintains PPC sub-par rating

S&P Global (S&P) this week maintained a sub-par rating of BBB for PPC due to persistent macroeconomic risks in Zimbabwe, among a number of challenges facing the cement producer.
The announcement comes as PPC has terminated its rating service agreement with the American market intelligence giant after completing the repayment of its Bond Programme.
“The credit rating…has remained unchanged since last issued in March 2019…the ratings on PPC at the time of withdrawal reflected the weak trading environment across the company’s portfolio and risks on profiling its debt maturities,” S&P said in a statement Monday.
In March last year, S&P downgraded the cement manufacturer from ‘A’ to ‘BBB’.
According to S&P, an obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories such as ‘A’ and ‘AAA’, but, “the obligor’s capacity to meet its financial commitments on the obligation is still strong”.
And, an obligation rated ‘BBB’ exhibits adequate protection parameters, but “adverse economic conditions or changing circumstances are more likely to weaken the obligor’s capacity to meet its financial commitments on the obligation”.
“Falling demand and increased competition has resulted in weaker cement price and volume growth forecasts, dampening debt-reduction prospects for PPC’s core South Africa business.
“Additionally, we consider that macroeconomic and currency regime uncertainty in Zimbabwe will have severe negative implications for PPC’s Zimbabwe business in the short term, from a trading and financial reporting perspective,” S&P said when it announced the downgrade in March.
This also follows PPC’s recent announcement in which it said its revenue for the half-year to September 2019 declined by 12 percent due to subdued performance at PPC Zimbabwe.
The group’s revenue declined to R4,9 billion from R5,5 billion recorded in the prior comparable period.
“The decline is attributable to a 17 percent decline in overall cement volumes to 2,6 million tonnes,” Roland Van Wijnen, PPC’s chief executive said.
“Southern Africa cement and PPC Zimbabwe were the main contributors to the decline,” he said.
Excluding PPC Zimbabwe, the group’s revenue declined by one percent.
Van Wijnen said the group’s results were also adversely affected by the devaluation between the Zimbabwean dollar and the South African Rand and the application of the provisions of IAS 29 – Financial Reporting in Hyperinflationary Economies, which was recently adopted in Zimbabwe.
Included in the group’s fair value adjustment loss of R270 million for the period was an estimated credit loss of R307 million relating to Zimbabwe financial assets, “R76 million of which was raised against the PPC Zimbabwe financial asset arising as a result of the PPC Zimbabwe debt being settled by the Reserve Bank of Zimbabwe”.
Meanwhile, PPC says it is in the process of dealing with some of the issues, which S&P’s commentary makes reference to.
The company said it would “initiate a process to review its capital structure “with the aim to improve the debt maturity profile”.
“This process is currently underway and PPC will inform the market as relevant developments become available,” PPC said.
newsdesk@fingaz.co.zw