Lafarge Africa Plc: Loan Restructuring - Silver lining or same old story?
- Lafarge Africa Plc (Lafarge) recently released an explanatory note to shareholders on its planned debt restructuring of its parent company’s loan ahead of the extraordinary meeting wherein the company expect to receive approval for its premeditated N90 billion rights issue. While the refinancing plan is in line with our view (See report: ), we had expected the company would use part of the proceeds of the right issue to reduce the parent company’s loan to N89 billion (from N149 billion), which will be rolled over with an extended maturity of 7 years. However, details from the explanatory note showed that management intends to restructure the outstanding total facility of $308 million which is expected to mature in 2018. Precisely, management intends to extend the maturity of $293 million (at a relatively higher cost) to 7.5 years with two years moratorium while the balance of $22.2 million will be converted to equity via the rights issue. Accordingly, we have updated our model to reflect the still elevated debt position and the refinancing premium on the extended facility.
- With the company’s loan from its parent conveniently aligned via restructuring, the management is now seeking approval from shareholders for a N90 billion rights issue. In one part, N40 billion of the proceeds of the issue will be used to finance short term obligation with First Bank (FBN) and N20 billion will be used to refinance the company’s CP programme (with N10 billion already issued, management guided to additional N10 billion before the end of the year with maturity of both series matching the conclusion of the rights issue). On another part, the company’s short-term obligation of $22.2 million (N7.9 billion) to Caricement BV. will be converted into equity via the rights issue. Accordingly, we estimate net proceed from right issue of N21.6 billion.
- With the above adjustment to our model unlocking additional N4.29 for our FVE to N27.94, we now have a NEUTRAL (prior: SELL) rating on the company at current price of N25.50. Overlaying our FVE on the planned N90 billion rights issue, we expect circa N0.61 average EPS dilution over our forecast period. However, we are yet to incorporate the additional shares in our estimate. Lafarge trades at 2018 EV/EBITDA of 7.6x which compared to Bloomberg EMEA peers of 13.4x.
ARM Securities Limited is a full-service brokerage house that offers best-in-class brokerage services to local as well as foreign private and institutional investors. Formerly known as Hamilton Hammer, the Company commenced operation in 1994 and was acquired by ARM Investment Managers in 2008--an acquisition which has successfully re-positioned the company as a recognized brokerage firm in Nigeria. The Company is a dealing member of the Nigerian Stock Exchange (NSE) and is regulated by Securities and Exchange Commission (SEC). ARM Securities research team provides insightful commentaries on the Nigerian economy and its equity and debt markets using an approach which incorporates a thorough understanding of the fundamentals of the industries and companies under coverage. The research therefore adopts an integrated methodology of top-down analysis and bottom-up stock selection, which focuses on publicly quoted companies on the Nigerian Stock Exchange that are judged to offer the highest potential for earnings growth. In addition, its analysts provide periodic commentaries on a range of topical global and local issues which provide investing clients with a holistic view of the opportunities and risks in today’s financial market landscape.
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