SWISS: Holcim cement deal to write off e343m in AfriSam debt

Swiss cement producer Holcim has been forced to write off e343 million (R3.5 billion) of debt and interest owed to it by the South African cement and construction materials firm AfriSam.

Shelving the debt is the latest in a series of desperate attempts to prevent the highly geared AfriSam from being forced out of business.

The unexpected announcement about the write-off was made from Holcim’s head office in Switzerland yesterday and comes as AfriSam faced the prospect of defaulting on R12bn of debt repayments due early next month.

Holcim, the world’s second-biggest cement producer, stated that because of the decline in demand for construction material since 2010, “AfriSam found itself forced to initiate additional financial restructuring measures in 2011. Holcim agreed to these measures yesterday after extensive negotiations.”

The agreement, which necessitated the write-offs, is an about-turn by Holcim.

It follows months of efforts by Holcim and the black empowerment company Bunker Hills to block attempts by the Public Investment Corporation (PIC) to restructure AfriSam. Bunker Hills holds a 37 percent equity stake in AfriSam.

The PIC, which has a R10bn equity and debt exposure to AfriSam, has spent months attempting to restructure the company’s balance sheet to ensure it would be in a position to avoid defaulting on its debt repayments.

A key aspect of the proposed restructuring is a bid by the PIC to convert almost R5bn worth of preference shares into AfriSam equity.

This move would see the PIC holding just more than 99 percent of AfriSam and all other shareholders being diluted to a negligible stake.

Holcim, which holds 15 percent of AfriSam, and Bunker Hills opposed the proposed restructuring although such opposition made the prospect of default almost inevitable.

The PIC took the dispute to the high court, which ruled in early December that the state-owned asset manager could convert its debt to equity.

The PIC then secured Competition Tribunal approval for its takeover of AfriSam although both Holcim and Bunker Hills attempted to delay, and then opposed, the proceedings.

The crisis-like conditions that have dogged AfriSam have been described by analysts as inevitable, given the enormous valuation that was attributed to AfriSam at the time of its creation in 2007.

The extremely high valuation combined with the R16bn of debt that was used to fund the introduction of Bunker Hills meant that AfriSam was facing a crippling and growing debt burden from its beginning as a black-empowered company.

This difficult situation deteriorated significantly with the financial crisis that spread across the globe in 2008 and undermined what had been reasonable prospects for the South African construction industry.

In its efforts to rescue AfriSam the PIC has repeatedly stated that its focus was on protecting jobs. But like other parties involved it also stands to lose billions of rands.

In the same announcement yesterday, Holcim added that it was writing off a further Sf360 million (R3.1bn) in relation to underutilised and closed plants in Spain, eastern Europe and the US.

SWITZERLAND: Holcim Profit Falls Short of Estimates on Costs: Shares Drop

Holcim Ltd., the world’s second- largest cement maker, reported first-quarter profit that fell short of analysts’ estimates as raw-material costs climbed and governments postponed infrastructure projects.

Earnings before interest, taxes, depreciation and amortization fell 17 percent to 753 million Swiss francs ($872 million), the Jona, Switzerland-based company said in a statement today. Royal Bank of Scotland analyst John Messenger had predicted 843 million francs.

Holcim couldn’t raise prices enough to offset above-average costs for materials, transportation and fuels, such as coal. Chief Executive Officer Markus Akermann said today he couldn’t be sure if price levels “will stick.” While a mild winter in parts of Europe helped spur construction activity among private developers, governments struggling with budget deficits held back on projects.

“Volume increases were encouraging but insufficient to make up for input cost increases as yet,” JP Morgan analyst Michael Morris and colleagues said. “There are signs of recovery emerging as demand is improving in the U.S. and Asia.”

The Swiss cement maker reported net income of 10 million francs, compared with a year-earlier loss of 68 million francs. Analysts in a Bloomberg survey had predicted 109.8 million francs. Sales declined 1.8 percent to 4.66 billion francs.

Holcim fell as much as 4.6 percent in Zurich trading, the most in eight months. The stock traded 3.7 percent lower at 72.15 francs as of 9:09 a.m. local time.

Deliveries Rise

Cement deliveries rose 7.2 percent, led by the Asia Pacific region. The company is expanding capacity in India to 60 million tons as the country’s growing population spurs spending on housing, roads, ports and bridges.

“We are still of the opinion that the construction sector in the mature markets will recover and that the growth in the emerging markets will continue,” Holcim said.

The strategy to grow in emerging markets mirrors that of Lafarge SA, the world’s No. 1 cement maker, which reports first- quarter earnings tomorrow. Analysts predict a 21 percent increase in Ebitda to 552 million euros ($819 million).

SWITZERLAND: Swiss Stocks Increase as Holcim, Actelion Advance in Zurich

Swiss stocks climbed, rebounding from the biggest selloff in four weeks, as banks advanced and Holcim Ltd. rallied in Zurich.

UBS AG and Credit Suisse Group AG advance at least 1 percent as JPMorgan Chase & Co. reported record profit. Holcim rallied 4.5 percent after analysts recommended the cement maker. Actelion Ltd. climbed 1.2 percent on a report that the company may consider a sale.

The Swiss Market Index of the biggest and most actively traded companies gained 0.7 percent to 6,397.86 at 3:00 p.m. in Zurich. The broader Swiss Performance Index also increased 0.7 percent to 5,835.10.

The benchmark Swiss gauge tumbled 1.4 percent yesterday, led by exporters, after Tokyo Electric Power Co. said its earthquake-hit Fukushima Dai-Ichi nuclear power plant may release more radiation than Chernobyl.

UBS, Switzerland's largest bank, gained 1.6 percent to 16.98 francs. Credit Suisse, the second-biggest, rose 1 percent to 40.5 pence.

JPMorgan, the second-largest U.S. bank by assets, posted a 67 percent increase in first-quarter profit, beating analysts' estimates. The bank also reported a decline in provisions for bad mortgages and credit-card loans.

Holcim jumped 4.5 percent to 74 Swiss francs after Sanford C. Bernstein & Co. named the cement maker its "top pick" in the European buildings materials industry. Exane BNP Paribas today raised its recommendation for the sector to "outperform" and lifted its rating on Holcim to "neutral" from "underperform."

'Positioned to Benefit'

"We believe the company is positioned to benefit from the recovery themes we expect will surprise in 2011-12," wrote Phil Roseberg, a senior analyst at Bernstein in a report to clients. "Specifically high-margin growth from operating leverage as well as exposure to the faster pace of recovery in CEE and Mexico."

Actelion jumped 1.2 percent to 51.8 francs. Reuters reported that the company will consider a sale if a suitor makes an offer "even close" to what the Swiss biotechnology company considers its value. The news agency cited Chairman Robert Cawthorn.

Actelion's chairman said it's a bad time to sell, though he will recommend any appropriate bid, according to Reuters. Actelion has yet to receive any offers, Cawthorn said.

Lonza Group AG dropped 4.7 percent to 73.55 francs after the world's biggest supplier of chemicals to drug companies predicted that its first-half performance will be weaker than last year because of the strong franc and rising raw-material prices.