Cement making giant- Lafarge Africa Plc, on Wednesday said talks are at an advance stage for the sale of its loss-making South African subsidiary by LafargeHolcim with consideration being all of its outstanding inter-group debts amounting to $316.289m.
This, the company explained, is ”the sum total of the principal sum of US$293m, plus all accrued interest of US$23,289,061 as of July 31, 2019.”
In the explanatory note to the Nigerian Stock Exchange (NSE), Lafarge listed benefits of the transaction, which is its only existing foreign currency loan, to include an enhancement of the value of its shareholders’ investments in the company, “which is of utmost importance to the Board.
The deal, it continued, will free it of any foreign currency debt obligation, while protecting and preserving its “net Income and cash flows considering the resulting decrease sums to be applied towards debt service as on the overall the Company’s debt will be reduced by about N115bn and an additional approximately N47bn by the eventual deconsolidation of Lafarge South Africa Holdings.”
Following the conclusion of the transaction, the company stressed that the only debt on its books “will be the 2nd Tranche of the Corporate Bond (N33.8 billion) with maturity in June 2021, and the CBN Power Intervention funds through Bank of Industry (N19.9 billion).”
The improvement in cash flow and net income, resulting from the reduction in debt service outflows, it continued, will enable Lafarge Africa to consider additional investments in cement production capacity to improve its market share in Nigeria.”
The sale is equally expected to boost the company’s profitability, through positive cash flow generation.
According to the company’s performance score-card for 2018 audited year, loss after tax dropped to N8.801bn from N34.801bn in 2017, translating to a loss per share of N105 as against the previous N637. Group operating profit for the year stood at N24.885bn, despite the N38.602bn from the Nigerian operations, which was impaired by the N13.717bn loss by South Africa. This was an improvement from the N7.885bn recorded in 2017 with South Africa’s N22.27bn loss dragging down Nigeria’s N30.155bn profit.
The group explained that the sale of the South African operating unit to its LafargeHolcim will also Lafarge Africa’s cash flow and net income, given the reduction in debt service outflows, besides cutting annual interest expense by about N9.1bn on account of the full repayment of the foreign currency inter-company loan. It is expected to further enable Lafarge Africa to reinvest in (and expand) operations in existing plants; just as its management can now devote attention to operations with higher profitability and prospects.
The deal, it continued, will the company’s Balance Sheet and position it “to improve overall profitability; and enable the re-rating of the Company’s share price.”
While auditing the 2018 accounts, Lafarge Africa’s auditors- KPMG Professional Services, informed the management that, based upon its assessment of the 2018 performance of Lafarge South Africa Holdings, its valuation in the accounts of the group “would have to be impaired to a tune of N70bn (being the Potential Impairment). The
Board, acting within its regulatory duties, delayed the approval of the 2018 accounts whilst seeking the optimal resolution of this significant issue which had a potentially major impact on shareholders‟ value in the Company.
“During deliberations by the Board on this matter, various options were considered including exit from South Africa, the Board then arrived at the conclusion that the disposal of LSAH as the best option for halting the Potential Impairment. In addition and based on well-considered metrics and the very limited time to explore other options, the Board concluded that a buy-back by LH was the most appropriate means of deriving the best value from the proposed sale in the interest of all stakeholders and most especially the Minority Shareholders.
“Understanding the implication of the Potential Impairment on the Company, LH acted timeously by entering into negotiations with the Company with respect to the Potential Sale.”
It said steps were therefore taken to ensure that the transactions were at arm’s length.
In order to ensure a transparent and arm’s length Transaction, the Board took the