Apr 2015 Financial News

TCL now looking to refinance US$280 mn

Apr 02, 2015

Following its successful rights issue, which raised more than US$56 million and addressed issues with its balance sheet, Trinidad Cement (TCL) is getting ready for the next stage of its restructuring: the refinancing of its existing US$280 million debt with new loans.

Disclosing this information in recent interviews, TCL chairman Wilfred Espinet said at its close the rights issues will be totally subscribed.

“I don’t think there has been a rights issue that has been completely subscribed in the history of T&T,” noting that unlike most other rights issues in which new shares are issued at a discount, the TCL rights issue involved shares that were issued at a premium.

At the end of the rights issue Mexican cement giant has a 39.5 per cent stake in TCL, which means that there will be no need for a private placement.(See sidebar)

He said one of the specific benefits of the success of the rights issue is that cement producer, which is headquartered in Claxton Bay, will receive an immediate reduction in the rate of interest it pays on its existing debt.

Espinet explained that when at the end of September 2014, TCL stopped its debt payments, which meant that its interest charges for the fourth quarter of last year increased from 10 per cent to 12 per cent, in accordance with debt restructuring exercise agreed to by thement from 2012.

He said the total interest charge at the end of Sept 2014 was US$7 million and the increase in the interest rate pushed the interest charge for the fourth quarter was US$8.5 million.

Said Espinet: “One of the specific benefits of the rights issue is that it will result in an immediate reduction in TCL’s interest charge. When we went into the standstill, our interest charge went from 10 per cent to 12 per cent.

“As a result of us getting in this new capital from the rights issue, our creditors are going to reverse the 2 per cent penalty and have agreed to lower the average interest from 10 per cent to 8 per cent from January 1, 2015.”

This means that for the first quarter of 2015, from January 1 to March 31, TCL will be paying an interest charge of about US$5.5 million, which means that “as a result of the new capital brought in by the rights issue, TCL’s benefit in interest charges is about US$6 million a year,” said Espinet.

And he said that assuming the rights issue brings in about US$56 million, this means the return, in terms of the savings on the interest charge, that TCL is getting from the rights issue is about 11 per cent.

He said that what is more important than the rights issue or the resulting savings in debt payments is that those elements of TCL’s plan “set the stage for the real coup de gras,” which is the attempt by the cement company to raise debt to pay off all of the existing debt held by its creditors, amounting to US$280 million.

According to a TCL notice in the Wednesday Guardian, the debt restructuring agreement with its existing creditors gives TCL “the ability to prepay originally secured and unsecured debt on a discounted basis within 90 days of the effectiveness of the restructuring agreements.

The challenge of the board is to find creditors who would be willing to invest in TCL’s debt.

Espinet said: “If the current debt holders are paid off in full, within 45 days of the debt restructuring agreement coming into force on March 30, TCL will save about US$30 million ($192 million).”

Asked whether the refinancing of TCL’s existing debt meant embarking on an expensive, multi-city tour of North America, as was done last year by the dismissed former CEO of TCL, Rollin Bertrand, the current TCL chairman said that the company’s largest single shareholder, Mexaican cement giant Cemex, had tapped its international financial connections to bring investment bankers to T&T.

He said three or four banks have made debt refinancing proposals to TCL, which are being evaluated by a three-member board committee chaired by Unit Trust Corporation executive Nigel Edwards and including directors Alison Lewis and Alejandro Ramirez Cantu, the company’s acting CEO.

He said TCL had been trying to tap the debt market for the debt refinancing but that “the initial response is that there is little appetite for it.”

He said TCL is looking for different stages of debt refinancing and will perhaps go for a short-term facility that will allow TCL to benefit from the discount available in the limited time, until May 15, that it has to organise the facility.

The board will consider a short-term facility with an 18-month horizon that is likely to be converted into a longer-term facility.

The financial restructuring of TCL is not the end of the changes that the group, which has operational subsidiaries in Jamaica and Barbados, will undergo this year.

The cement company’s chairman said the financial restructuring and refinancing are just the first phase of a two-phased operation: The restructuring and strengthening of the holding company will be followed by restructuring of the operational subsidiaries.

“This second phase of operational reorganisation will focus on making cement as efficiently and cost effectively as possible. Our objective there would be to ensure that the cement produced by TCL is internationally competitive.”

Espinet also noted that under the previous administration of the group, TCL announced a moratorium on its debt payments in January 2010 and never completed its debt restructuring exercise until May 2012. He said the result of the negotiations was that TCL a higher interest rate, from 8 to 10 per cent, on an increased principal base.

As compared to a debt restructuring exercise that took more than two years to complete and which put the company in a worse financial position, Espinet noted that the current board completed its debt restructuring exercise within six months and it has placed the company in a stronger financial position.

The TCL chairman also noted that in order to meet its debt payments, the previous administration at TCL found itself having to forego capital expenditure, which led to higher maintenance costs and lower productivity.

Espinet said the rights issue and the breathing space resulting from the reduction in the quarterly interest charges will allow the group to embark on new and essential capital expenditure, which will result in lower maintenance costs and higher productivity.

About rights issue

For a non-renounceable pro rata Rights Issue

Some 124,882,568 new shares will be issued at a price of $2.90 per new share on the basis of one new share for every two existing shares held.

The amount that the company expects to raise under this rights issue is $362,159,447.20 (before costs).

In a letter to shareholders in the TCL information memorandum for the rights issue, the money raised under this Rights Issue will be used to:

• pay restructuring and transaction expenses;

• replenish working capital;

• service debt;

and

• invest in capital expenditure.

 

Source:
Business Guardian, BG6
Trinidad Guardian
Thursday April 2, 2015