Lafarge Africa mulls EGM to seek approval for debt to equities conversion, others
Leading cement solutions conglomerate, Lafarge Africa Plc., is set to convene extraordinary general meeting (EGM) to consider strategic resolutions, including understanding to convert about N6.8 billion of its foreign core investor, LafargeHolcim to additional shareholdings in Lafarge Africa, its Nigerian subsidiary.
Other business of the EGM may include increase in the company’s share capital, N90 billion rights issue and authority of the board to engage in related party transactions.
Already, LafargeHolcim had for the sake of soft-landing agreed to convert N7b debt to equities in N90b rights issue and experts are upbeat that Nigerian shareholders will comfortable agree to the new deal as part of drive to push up fortunes of the group.
Additional details suggest that the conversion of some $22.2 million from the total outstanding intercompany loan of $315.2 million due to LafargeHolcim is part of a proposed rights issue of N90 billion, scheduled for the fourth quarter of this year.
Facts on the balance sheet restructuring indicated that the debt-to-equity conversion is part of loan restructuring arrangement under which the total outstanding intercompany loan will be split into many tranches to allow Lafarge Africa repay each split loan as the company’s cashflows permit.
Just as Lafarge Africa will further use part of the net proceeds of the N90 billion rights issue to repay its short-tenored loans, in addition to cash generated from its main business operations, in line with the ongoing debt restructuring, LafargeHolcim will restructure the current intercompany loan without having to increase the principal amount owed by Lafarge Africa, and without having to advance any additional principal sums to the company.
Besides, under the new arrangements, LafargeHolcim will provide another standby loan of $20 million, to assist Lafarge Africa to bridge its working capital requirements. The loan will be drawn only as required and on the approval of Lafarge Africa’s board of directors.
Industry observers believe that the terms of the proposed restructured loans will provide the company with much-needed flexibility considering the company’s current financing arrangements. The terms provide two-year moratorium on the long term loans while Lafarge Africa’s repayment obligations in the next three months will be extended into seven and a half years restructured tenor.
It is the thinking of Lafarge Africa’s directors that should shareholders approve the resolutions, the restructuring of the loans will further improve the company’s cashflows; given the moratorium and extended repayment period of the facility.
Even though there are chances that the debt-to-equity conversion may further increase LafargeHolcim’s majority shareholding in the Nigerian subsidiary, Business Hilights recalls that Swiss registered global cement solutions provider had through a similar rights issue and debt-to-equity conversion deal in 2017 increased its equity stake in the Nigerian subsidiary to 76.32 per cent, now controlling the much-needed three-quarters percentage shareholdings necessary for major corporate changes.
Otherwise, LafargeHolcim rallied on the goodwill of the N131.65 billion rights issue in 2017 to increase its majority equity stake by 4.97 percentage points from pre-rights issue position of 71.35 per cent to 76.32 per cent after the rights issue.
Lafarge Africa last November 24 launched an offer to raise N131.65 billion through a rights issue of about 3.1 billion ordinary shares of 50 kobo each at N42.50 per share. The new shares were pre-allotted to shareholders on the basis of five new ordinary shares for every nine ordinary shares held as at the close of business on November 1, 2017. The acceptance list opened last November 24 and ran till the close of business on December 15, last year.
Two key transactions that hobbled the finances of Lafarge Africa include the acquired debt from the merger with United Cement Company of Nigeria (Unicem) Limited and the debt of $659.2 million to the parent group, largely due to the balance of the short term intercompany loans advanced by Holcim Group to Unicem before Holcim Group’s global merger with Lafarge S.A.
It would be recalled that due to Lafarge Africa’s 100 per cent acquisition of the equity of Unicem and the subsequent merger of Unicem into Lafarge Africa, Lafarge Africa assumed the position of the borrower. The intercompany loans were advanced mainly for the completion of two lines of the 5.0 million metric tonnes per annum cement plant at Unicem’s Mfamosing Cement Plant in Calabar, Cross Rivers State and the purchase of 15 per cent equity in Unicem previously held by Flour Mills of Nigeria Plc.