•As Company Seeks N16bn Rights To Reduce Debts, Unbundling
The board of UACN Property Development Company (UPDC), on Tuesday, informed the Nigerian Stock Exchange (NSE) that its parent company- UAC of Nigeria Plc, to divest its entire stake in the interest of all stakeholders.
According to a joint statement announcing plans by UPDC to raise N15.96bn by way of a rights issue to existing shareholders, which will help reduce its outstanding debt to a sustainable level, UACN will no longer hold any shares in UPDC
The statement by Godwin Samuel and Folake Kalaro, company secretaries of UACN and UPDC respectively, said the divestment and other related transaction now being reviewed by the Securities & Exchange Commission (SEC) and the NSE, will see UPDC operate as a standalone legal entity, free to source appropriate structured capital.
As a result, “the ordinary shares that UAC holds in UPDC-post rights issue will be transferred pro-rata to all UAC shareholders, who will hold such UPDC shares in addition to their existing equity interest in UAC.
“UAC will cease to be a shareholder in UPDC, and UPDC will cease to be consolidated UAC’s financial statements,” the statement stressed.
In summary, the statement noted that “each UAC shareholder will become shareholders in three separate entities – UAC, UPDC, and the UPDC REIT, benefiting from the future prospects of each.”
Meanwhile, the UPDC rights issue reduce the company’s debt obligations to “a level at which it is serviceable from recurring cash flows.”
The post-rights issue UPDC will be left with the long-term bond with a total outstanding balance of N4.3bn as its only interest-bearing obligation.
Also, both UACN and UPDC are proposing a restructuring that will see UPDC’s Real Estate Investment Trust (REIT) unbundled and shareholders are allocated REIT units directly in proportion to their post-rights issue holdings in UPDC.
Restructuring of the REIT is expected to materially increase free float and liquidity in REIT units, just as it will release immediate value to UPDC shareholders who will benefit from a direct interest in the UPDC REIT, which is profitable and has a track record of dividend payments.
UPDC, which holds 60% of the REIT has since 2016, three years after it was listed, received N3bn in aggregate dividends from its investment therein, including the N936m received for 2018 full-year.
However, the statement noted sadly that owing to UPDC’s challenges, “it has paid no dividends to its own shareholders over the same period.”
As a result of the unbundling being proposed any future dividends from the REIT will flow directly to the company’s shareholders, following which they will be allocated an asset with a current market value of N8.9bn.
“UPDC carries its interest in the REIT at N20.6bn which is its share of the REIT’s Net Asset Value. The N11.7bn difference between the carrying and listed values of UPDC’s interest in the REIT will be passed through UPDC’s accounts as a non-cash charge,” the company stressed.
Meanwhile, the statement explained further that the board and management of its parent company are in the process of a strategic review, evaluating the performance of UACN and its subsidiaries with the aim of achieving sustainable positive financial performance from its existing operations and enable management focus on businesses that align with its strategy.
With UACN divestment plan, subject regulatory approvals yet, UPDC ceases being a subsidiary of the group, just as the company will no longer own any units in the REIT. Also, the REIT ceases to be an associate company of UPDC as the shareholders become direct unit-holders in the UPDC REIT in addition to their shares in the company.
For the transactions to scale through, however, it is subject to the approval of no less than 75% in the value of the shares of members of UAC and UPDC present and voting at the respective court-ordered meetings of both entities.
Recall that UPDC issued an N15bn bond to partly refinance its N22.61bn borrowing in the form of bank loans, commercial papers, and overdraft facilities as at December 31, 2016.
The five-year Fixed Rate Senior Guaranteed Bond due 2023 is being issued via a book-building process that opened on March 29 and closes on April 13, with FBNQuest Merchant Bank Limited as lead issuing house, while Coronation Merchant Bank Limited is joint issuing house.
Coupon rate was between 15.5% and 16%, frequency is semi-annual, payable in arrears, while UAC of Nigeria is guaranteeing the bond up to 50% of the principal amount under the series of N10bn, FBNQuest and Coronation are each guaranteeing up to 25% or N3.75bn each and providing a revolving facility of up to N1.25bn to support UPDC’s short term operation working capital requirements.
