LafargeHolcim to convert N7b debt to equities in N90b rights issue – LafargeHolcim, the world leader in building materials and majority foreign core investor in Lafarge Africa Plc, plans to convert about N6.8 billion of its outstanding loan to Lafarge Africa to additional shareholdings in its Nigerian subsidiary.
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.
Lafarge Africa shareholders are scheduled to meet next month at an extraordinary general meeting to consider many resolutions, including increase in the company’s share capital, N90 billion rights issue and authority of the board to engage in related party transactions.
Preliminary documents on the balance sheet restructuring obtained by The Nation 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.
Lafarge Africa will also 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.
Under the preliminary terms of the 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.
Also, 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.
According to directors of Lafarge Africa, 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.
The board, which is urging shareholders to approve the resolutions, stated that the restructuring of the loans will improve Lafarge Africa’s cashflows; given the moratorium and extended repayment period.
However, the debt-to-equity conversion may further increase LafargeHolcim’s majority shareholding in the Nigerian subsidiary.
LafargeHolcim 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.
LafargeHolcim took advantage 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.
LafargeHolcim had picked up its rights fully and further subscribed to the un-allotted shares, thus raising its percentage shareholding. LafargeHolcim had earlier indicated it would subscribe fully to its rights under a debt-for-equities deal that will see conversion of LafargeHolcim’s dollar-based loan to equities.
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.
Lafarge Africa has struggled in recent period under a high leverage, largely due to acquired debt from the merger with United Cement Company of Nigeria (Unicem) Limited. Prior to the 2017 rights issue, Lafarge Africa was indebted to LafargeHolcim $659.2 million, 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.
Following 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.
Under the terms of the 2017 rights issue, any creditor shareholder could subscribe to their rights by way of a debt to equity conversion. Consequently, LafargeHolcim converted $262 million of the shareholder loan to equity, leaving a balance of $309.2 million. After the rights issue, Lafarge Africa also paid $82 million, leaving a current balance of $315.2 million.
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