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$15 million (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 $500 million, 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$24 million (J$2.14 billion) among total debt of more than J$5 billion.

"That's all TCL could handle at this time," said Haynes.

CCCL's indebtedness to TCL grew during the US$177 million modernisation and upgrading project at the Rockfort, Kingston plant that the parent company largely bankrolled, growing the cement manufacturer's capacity to 1.8 million tonnes per annum at finalisation of the works in August 2009.

The debt swap would erase 25.5 per cent of the total debt and 57 per cent of the $2.3 billion of long-term liabilities.

Having got the endorsement of shareholders, CCCL will issue 15 million preference shares, priced at US$1 each, to TCL, Haynes said, and adjust the company's balance sheet, accordingly.

This action, according to Orville Hill, finance manager at CCCL, will bring about an improvement in CCCL's profitability with a reduction of $135 million per year due to interest cost.

The company said the debt swap would improve shareholder value through enhanced earnings per share, and promised there would be no dilution of existing shares.

No timeline was given to complete the debt conversion.

The prefs, which will give TCL restricted voting rights, will be redeemable at the sole discretion of CCCL and at a date to be determined by the company.

The shares carry no fixed dividend, but TCL, which owns three-quarters of CCCL, will be paid distributions at a rate equal to dividends declared on ordinary shares.

CCCL's share capital currently stand at approximately $1.4 billion.

The 851 million ordinary issued shares have a market value of $3.4 billion on unit price of $4.05.

"Even though the market has changed, the fact is we are stronger today than previously and we are definitely in a better position. And this is what it is all about - positioning ourselves," said Haynes.

"So from an operational point of view we got a new plant, but we also have to look at our financials and balance sheet, and take the necessary action to clean it up and make profitability a little more robust going forward," he added.

In its nine month unaudited results ended September 2009, CCCL made a loss of $74.8 million on revenues of $6.9 billion.

sabrina.gordon@gleanerjm.com