Shareholders of Caribbean Cement Company Limited (CCCL) voted Tuesday in favour of the plan that would solidify Trinidad Cement Limited’s hold on the Jamaican operation, but would also free the operation of US$15m (J$1.34 billion) of debt and the attendant foreign exchange conversion risk.
TCL will swap the debt for equity in Caribbean Cement to be held in newly created preference shares.
"That loan is a continuous risk to us because there is foreign exchange risk involved and if you look back at our 2009 and 2008 financial years, you will see that there is a charge of over $500m, due to the depreciation of the dollar; so we want to remove that risk and one of the ways is to convert the debt to equity," said general manager of CCCL Anthony Haynes, just ahead of the vote in Kingston.
"With the conversion we would have removed it from a liability to asset on the balance sheet so strengthening it. We were also paying a debt burden in interest so by moving that out we have strengthened our P&L by reducing the potential charge due to foreign exchange movement and interest."
Caribbean Cement first disclosed the debt swap plan in December, after publication of its nine-month results that showed total debt at 22 times operating profit as cement sales fell, compared to 13 times operating profit at September 2008.
The debt swap will only partially deleverage the company, whose debt to parent TCL is US$24m (J$2.14bn) among total debt of more than J$5bn.