This article is provided to FT.com readers by Debtwire—the most informed news service available for financial professionals in fixed income markets across the world. www.debtwire.com
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The primary high yield bond market could wake from its slumber next month with the surprise announcement of a roadshow for AfriSam, Debtwire reports. But the South African BEE (Black Economic Empowerment) group’s decision to test markets stems more from its own refinancing dilemma rather than improved investor demand.
Last June, AfriSam borrowed two one-year bridge loans totalling ZAR 13bn (then EUR 1.304bn) to finance the acquisition of its 85% stake in cement maker Holcim South Africa. Now, lenders in the bridge deals want the company to take them out before the expiration of a 29 May securities demand deadline.
Arrangers Citigroup and JPMorgan postponed the previous mandatory refinancing date of 11 April but lenders could enforce when this deadline expires, said two sources familiar with the situation. In that case, the bridges would convert to notes that Citi and JP Morgan are permitted to “price at their discretion”, the two sources familiar with the situation said.
Given the paralysis gripping the leveraged loan markets, AfriSam would be hard pressed to convince existing lenders to extend further credit. The 365-day senior bridge loan carries a seven-year conversion option but is due to expire on 4 June, according to the source close to the company.
“If the company tries to roll the bridge loans, then lenders could say no,” one of the sources said.
That’s why the arrangers are preparing to sell in May a combination of cash-pay bonds, pay-in-kind (PIK) notes and a ZAR-denominated loan, according to two sources familiar with the situation and a source close to the company. The interest on the new debt is capped at Libor+ 600bps for the cash-pay bond and Euribor+ 1200bps for the PIKs, the sources added. Citigroup and JPMorgan declined to comment.
The outstanding senior bridge loan priced at Euribor+ 375bps last year with a margin step-up that has since capped at Euribor+ 500bps, the two sources familiar with the situation said.
AfriSam is aiming to place part of the outstanding bridge loans in the local market, the first source and the source close to the company said. Arrangers announced in January their intention to place a EUR 1.028bn seven-year bond and EUR 308m 10-year PIK but the note structure has changed, the source close to the company added. The preliminary offering memorandum is likely to be issued in early May with the roadshow pencilled to commence on 8 or 9 May, the first source and the source close to the company said.
AfriSam Holcim has total assets in excess of ZAR 3.7bn (EUR 298m), an annual turnover of more than ZAR 4.9bn (EUR 395m) and more than 2,000 employees, according to the company website. AfriSam Ltd also owns 62.5% in Tanga Cement in Tanzania and 10% in Klipstone, according to the site.
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