Black-owned cement producer AfriSam says it has saved R1bn in long-term funding costs by renegotiating the debt arrangement on its empowerment deal.
In May 2007, a group of black investors known as the AfriSam Consortium bought an 85% stake in the cement producer from JSE-listed Aveng and Swiss firm Holcim for R13bn through euro-denominated funding provided by JP Morgan and Citigroup.
At the time the deal was concluded, the rand was trading at R9.54 to the euro. It has since depreciated to R13.13.
Global investment banks have come under pressure because of the financial crisis brought on by defaults on loans. In late February, the US made a third rescue attempt at Citigroup.
"Citi was bailed out and is desperate to get out of paper [shares or bonds] and needs cash, so we took advantage," said Roland Greaver, a non-executive board member of the AfriSam Consortium.
AfriSam chairperson Dr Eltie Links said the absence of liquidity in the international debt market is why the company renegotiated the transaction.
By bringing the transaction back to South Africa, hedging costs are removed which alleviates pressure on cash flow, said Links.
The first step to move some debt back to SA was taken in June 2008 when the Public Investment Corporation, which manages government funds, invested R6bn in AfriSam (R1.7bn in the form of a loan, the remainder equity replacing a loan from Holcim at the time of the deal).
According to the group, the restructuring has saved AfriSam cash interest costs, reduced its book debt, and allows the company to pay less on its cash borrowings.
"The company concluded the refinancing of its outstanding euro-denominated ’payment-in-kind’ debt securities, achieving a discount of €79.2m," it said. A payment-in-kind debt security is a bond that pays interest in additional bonds instead of cash.
AfriSam said the refinancing was funded by drawing down a new €320m-equivalent, rand-denominated SA payment in kind debt facility which expires in June 2014.
"This is beneficial - it has reduced the volatility in terms of interest rate payments and now at least it knows what currency it is paying in," a market expert said.