Rights Issue: As Lafarge shops for N131.7bn
Lafarge Africa Plc is currently in the market for a Rights Issue as it shops for N131.7billion from its existing shareholders. The Rights presents shareholders with the opportunity to increase their investments in the company and provides the company the opportunity to prepare and position for future capacity expansion. LafargeHolcim the largest shareholder in Lafarge Africa Plc has clearly confirmed that they will be taking up their Rights in full.
The Rights Issue
The Rights Issue of 3,097,653,023 ordinary shares of 50 Kobo each at N42.50 per share is the largest in the history of the Nigerian Stock Exchange (NSE). The Issue Price represents a discount of approximately 17.5percent to closing price of N51.48 on September 22, 2017. The Rights Issue will result in 3.09billion new ordinary shares being issued representing 36percent of the share capital.
The acceptance list for the Rights offer opened Friday November 24, 2017. The Rights Issue is expected to close on Friday December 15, 2017 and it is on the basis of five (5) new ordinary shares for every nine (9) ordinary shares held by shareholders of the company as at November 1, 2017.
The Rights are tradable on the Exchange between November 24 and December 15, 2017. The cash proceeds from the Rights Issue will essentially be utilised to deleverage the company, support working capital and expand operations. The lead issuing house is Chapel Hill Denham Advisory Limited while Joint Issuing House is Standard Chartered.
Benefits of the Rights Issue
The company told shareholders, investors and analysts at a “facts behind the rights issue” event the intention of the Rights Issue is to strengthen its balance sheet and financing structure. In addition to a deleveraged balance sheet benefits as well as headroom for additional capital, the Rights Issue is beneficial to the company in terms of cash flow preservation and improved liquidity.
Lafarge Africa Plc will apply the net proceeds of the Rights Issue to: (i) refinancing a portion of the company’s foreign currency denominated shareholder loans, by way of a debt-to-equity conversion and (ii) finance working capital requirements and (iii) expand operations. After the deduction of the offer cost estimated at N1.35billion the estimated net proceeds of N130.29billion will be applied as follows: debt-to-equity conversion (N92.96billion or 71.35percent of the estimated net proceeds); working capital (N18.66billion or 13.80percent); and expansion of operations (N18.66billion or 13.80percent or the estimated net proceeds).
The Rights Issue which is the company’s first since 2005 represents an important step in resolving the company’s foreign currency exposure and impact on its earnings, said Bolaji Balogun, chairman of Lafarge Africa Plc.
“The recapitalisation is positive and our largest shareholder, LafargeHolcim has committed to subscribing to their rights in full through a conversion of existing shareholder loans. This investment is a strong indication of the groups’ continued belief in the Nigerian story. It is the largest right issue and the largest investment in a listed company by an investor. It reduces our foreign currency exposure by approximately half, improves our cash flow and positions the company for our future capacity expansion plans,” Balogun said.
Lafarge Africa Plc, a leading sub-Saharan Africa building material company is a subsidiary of LafargeHolcim, a world leader in building materials. Listed on Nigerian Stock Exchange with presence in Africa’s two largest economies, Nigeria and South Africa, Lafarge Africa is actively participating in the urbanisation and economic growth of Africa. The market capitalisation of Lafarge Africa Plc which stood at N236.97billion pre-rights issue is expected to increase to N368.62billion post-issue. As at Tuesday, the share price stood at N49.8 on the Nigerian bourse while market cap was in excess of N277.673billion. The company’s share price had reached a 52-week high of N66.99 from a 52-week low of N34.47. The company’s Shares Outstanding are in excess of 5.575billion units.
Combining its operations in Nigeria –Ewekoro and Sagamu plants in Ogun State, Ashakacem in Gombe State, Mfamosing in Cross River State, Atlas cement in Rivers State and Ready-Mix Nigeria with its varied operations in South Africa, Lafarge Africa has a current installed cement capacity of 14.1million tonnes per annum.
This is in addition to strong market leading position in Aggregates, Ready mix concrete and Fly Ash. Before a scheme of merger of its 100percent-owned subsidiaries (Unicem & Atlas), the ownership structure of Lafarge Africa Plc shows LafargeHolcim Group, the company’s largest shareholder owns 73percent while minority shareholders own 27percent. Ownership of LafargeHolcim Group will depend on subscription after the Rights Issue.
What the Rights Circular says
As at December 31, 2016, the company’s total indebtedness stood at N104.5billion. Apart from the foregoing, the company had no outstanding debenture, mortgage, charges or other similar indebtedness other than in the ordinary course of business.
Nine months scorecard and operational review
In the nine months to September 30, Lafarge Africa Plc reported revenue growth of 38.9percent to N223.669billion from N161.044billion in the same period of 2016. Gross Income increased to N57.911billion from N18.110billion, up by 219.8percent. The company reported a Profit Before Tax (PBT) of N1.094 billion from a Loss Before Tax (LBT) of N40.368billion in the corresponding nine months period of 2016.
Michel Puchercos, CEO of Lafarge Africa said: “Our Company continues to recover since we implemented the turnaround plan in September 2016 and have delivered a good performance even in a challenging market. As of September 2017, the cement demand in Nigeria was significantly lower than prior year. Nevertheless, operating EBITDA for our Nigeria operations was up 4.0x at N41.7 billion and EBITDA margin stood at 30% thanks to stable pricing environment, steady industrial operations, fuel flexibility, execution of our commercial and logistics performance improvement plan. We shipped the first batch of cement to the Ghana market, which was well accepted.”
For the 9-month period, Ewekoro II utilized 65percent of coal and petcoke combined, as gas supply was low at about 36percent. Ewekoro I plant utilized 44percent of alternative fuels, with gas supply in the region of 50percent while Sagamu achieved about 25percent alternative fuel substitution over the same period. Mfamosing plant in the South East region, utilized 99 percent gas in spite of a gas explosion in August. AshakaCem operations utilized 82percent of coal over the same period.
“The major cement producers have largely succeeded in diversifying their energy mix away from Low-pour-fuel-oil and gas to other fuel sources such as coal, biomass and other alternative fuels. Although energy costs were up significantly in first-half (H1) in naira terms year-on-year (y/y) largely because of dollar-linked costs such as gas, on a US$ basis, the increases on a cost per tonne basis were relatively modest,” said Tunde Abidoye-led team of research analysts at FBNQuest.
The analysts see positive outlook for the cement industry in the medium to long-term. “In the medium-term, we expect sector unit volumes to rebound to mid-single digits, driven largely by acceleration in the federal government’s capital spending and the country’s return to economic growth. Longer-term, we expect increased consumption of cement in Nigeria as the country modernises its infrastructure. An improved economic outlook, low consumption of cement per capita (c 110kg/ capita) and positive demographic trends (c. population growth of 2.8percent y/y) also bode well for the sector’s sustainable growth”, FBNQuest analysts said.
Lafarge solidifies market position with Atlas Cement and UniCem merger
Ahead of the on-going Rights Issue, the shareholders of Lafarge Africa Plc approved its merger with Atlas Cement and United Cement Company (UniCem), wholly-owned subsidiaries of the building solutions provider.
Atlas Cement, based in Port-Harcourt, has moved from supplying Ordinary Portland Cement to providing cement solutions to the oil and gas sector. It serves as the hub for Lafarge Africa’s ready-mix operations in the South-South and South-East markets. Production capacity at Calabar-based UniCem was doubled in 2016 to 5 million metric tons consolidating the cement maker’s leading position in the region.
Michel Pucherchos, CEO of Lafarge Africa said, “The merger is part of the asset consolidation we began in June 2014. It will solidify our market position in Nigeria particularly our presence in the South-South and South-East regions. We have seen our installed cement production capacity grow from 4.5 to over 10 million metric tons per year with a diversified product range.”
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