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Financial News

Feb 2015 Financial News

TCL chairman: No takeover by Cemex

Feb 12, 2015

There is no move to takeover Trinidad Cement Ltd (TCL) by Mexican cement giant, Cemex, says Wilfred Espinet, chairman of TCL who spoke to Business Guardian about the company’s future on Tuesday after shareholders met at the Hilton Trinidad and Conference hotel on Monday night to vote on removing the 20 per cent cap.

Shareholders representing some 91.4 per cent of TCL’s shares voted for the removal of the 20 per cent restriction, clearing the way for financial restructuring to take place of the company’s $1.9 billion debt.

Cemex is the world’s largest building materials suppliers and cement producers. It operates on four continents, with 66 cement plants, 2,000 ready-mix-concrete facilities, 400 quarries, 260 distribution centres and 80 marine terminals.

Espinet said: “To say whether or not Cemex takes over, I am not in any way aware of any attempt on Cemex’s side to do it. In fact, Cemex’s position today as it stands, is that they were adamant they were not going to make an attempt to take over the cement company in T&T—TCL.”

The TCL board on Friday passed a resolution to raise capital through a rights issue of 124,882,568 new shares at a price of $2.90 per share with existing shareholders being given the right to purchase one new share for every two shares held.

At Monday’s meeting it was disclosed that in order to ensure a successful rights issue, the TCL board agreed it would be beneficial to have a “backstop shareholder” and had chosen a Cemex subsidiary, Sierra Trading, to fulfill that role.

As the backstop shareholder, Cemex agreed to participate in the rights issue to the fullest extent permitted by its 20 per cent shareholding. But the Mexican cement giant went further and agreed to commit additional capital up to a maximum total participation of US$45 million in order to ensure that TCL meets a capitalisation target amount of at least US$50 million.

In consideration of the backstop position, the board has agreed to grant an exclusive right to Sierra Trading to subscribe and purchase any shares in the rights issue which are not taken up by shareholders, up to an amount that will not exceed 40 per cent of TCL’s outstanding shares.

The board also agreed that if Sierra Trading has not achieved a shareholding in TCL of at least 35 per cent in the rights issue, then subject to receiving all required approvals—including shareholder approval—to issue a private placement of TCL shares in favour of Sierra Trading in an amount that will permit them to achieve a shareholding of 35 per cent of TCL's outstanding shares.

Espinet added that if any individual or company wanted to take over TCL, there is a process in place.

“The shareholders said it was not in the interest of the company or the shareholders to maintain and retain that cap. Given the fact that they removed the cap after all the administrative processes have been achieved, it means if Cemex or anyone, for example, if ANSA McAL wanted to take over TCL you can do so.”

Asked whether the increased volume of TCL shares trading on the TTSE would attract the capital which TCL required, Espinet said: “The restructuring exercise took a number of things to be considered and reconsidered. For example, it involves a restructuring of the employees’ relationship, it involves a restructuring of the debt and it involves a restructuring of the balance sheet.

“One of the things that is necessary to restructure the balance sheet would be to inject new capital, which this attempts to do is, it attempts to raise capital. It can satisfy the restructuring demands that have been made by our lenders.”

Commenting on Monday night’s vote by the shareholders, Espinet said the removal of the 20 per cent cap is being seen as a positive move both by the shareholders and the board. Substantiating his point, Espinet said the close of trading on Tuesday, the share price moved up by $0.21 and this is a clear indication of the shareholder’s approval of the 20 per cent removal.

Asked whether members of the construction sector needed to be concerned by an increase in price, Espinet said he expected them to welcome the move to have more shares traded on the TTSE.

“They could feel more comfortable that cement they will now be getting is going to be more reliable from a quality point of view. We have people from a worldwide operator of cement now putting its name in such a way they will have to be ensuring the brand stands up to their standards. They will not be tainted by any bad branding,” he said.

Espinet added that stakeholders have an issue with inefficiencies in the operations of a company.

“They don’t have a quarrel with pricing because prices rise on everything everyday. What we really have a quarrel with is when you put some kind of a protective arrangement in place and create inefficiencies for it.”

Expanding on the operational efficiencies, he tells shareholders: “One expects greater efficiency in the operation and move to a more world competitive standard.”

Looking to the future he said now that one more hurdle has been achieved, it’s time to move forward to the second hurdle.

“The exercise of the rights issue so we can get the funding in and then get on to refinancing the debt of the company.”

Asked how long the entire exercise to be completed, Espinet said by June.

Firm was close to insolvency in Dec

In a presentation at Monday’s special meeting, managing director of Advisory Services at PwC, Brian Hackett, concluded that in the “absence of materially increased lines of credit/funding, a condition of Insolvency would have likely emerged by December 2014.”

PwC was hired as TCL’s financial consultants shortly after the new board was elected by the shareholders at a special (compulsory) meeting last August,

He based this on the fact that TCL had $171.2 million in available cash as at September 30, 2014 and would have generated an estimated $66.8 million in net cash from its operations between October and December. This would have left the company with $238 million to meet its commitments.

TCL would have faced debt and debt-like obligations of $472 million, comprising debt service, liabilities to employees and other current debt-like commitment.

This would have left the company with a funding gap of between $234 million and $266.4 million, leading the PwC expert to conclude: “In our view the group could not meet its debt, and other material commitments as they were scheduled or likely to fall due.”

Hackett’s presentation also noted that the TCL group, as at September 2014, had achieved 72 per cent of its revenue target, 60 per cent of budgeted EBITDA, but only 35 per cent of full-year budgeted net profits.



The vision has been clearly laid out. The board has found what we consider to be the person to partner as a major stakeholder, the Cemex company. The company is going to be bringing to TCL a lot of its expertise in cement making, its market knowledge meaning, for export markets especially. It will be for TCL an opportunity to get Cemex’s help in raising finance because raising finance is a very critical part of us restructuring the company.

WILFRED ESPINET,
chairman, Trinidad Cement Ltd

 

Source:
NADALEEN SINGH
nadaleen.singh@guardian.co.tt
Trinidad Guardian, BG6
Thursday February 12, 2015