The board and management of UAC of Nigeria Plc, on Tuesday wrote to the Nigerian Stock Exchange (NSE), explaining that the planned fresh N15.4bn in fresh capital was to support its various subsidiaries and help them survive the current harsh economic environment.
Shareholders of UACN, one of the nation’s oldest conglomerates, are expected to vote for the capital raising proposal by way of rights at the annual general meeting for N15.4bn, when they meet on June 14, 2017.
The amount would also provide UACN “the required flexibility to deepen our play as opportunities for additional investments emerge in the market” where it operates.”
Although its real estate subsidiary- UACN Property Development Company has launched a N5.2bn rights issue, UACN as parent company plans to offer support pending improvements in market conditions. The subsidiary’s plan to realize certain value-preserving assets is now being hampered by market weakness and challenges in the operating environment, for which it pays about N0.5m monthly in punitive financial charges, the statement added.
“It is important that the group is resourced to support the subsidiaries at this critical time,” according to the statement by Godwin Samuel, the group’s Company Secretary and Legal Adviser added, noting that the amount being sourced is to enable the group take advantage of opportunities that may emerge for additional investment in current and adjacent categories it plays in.
The board and management, the statement continued, after a careful review of developments in the operating environment hopes to utilize the fund to meet its obligation as some other subsidiaries also pursue rights issues.
While Grand Cereals Limited, its unquoted subsidiary, is seeking N7bn, Livestock Feeds Plc is eyeing N0.75bn to enhance their capital position, with the continued deterioration in the operating environment, amidst “exchange rate volatility, inflationary pressures, interest rate hikes and liquidity constraints all leading to significant cost increases and decline in consumer purchasing power.”
Giving a breakdown, the group noted that seasonal raw material prices in its animal nutrition segment have doubled, resulting negative implications for margins and working capital, besides that owing to developments in the nation’s financial sector, bank lending are shrinking and when available, they come at very high interest rates around November and December, the peak of the company’s procurement season, which unfortunately coincides with the financial year-end of banks, when balance sheet management is paramount.