Loan Restructuring: Silver lining or same old story?
Lafarge Africa Plc 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: Remain Cautious on Near-Term Headwinds ), 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. Proshare Nigeria Pvt. Ltd. Going by details of the explanatory note, the restructured loans are being priced at a post moratorium rate of 3-month Libor+6.35% ( 2-year moratorium rate of 12-month Libor+6.35% ), a 64bps premium to the average rate of 3-month Libor+5.71% on the original facility ( compared to our earlier estimate of 50bps premium ). Accordingly, we have raised our interest expense forecast to reflect the higher borrowing rates and revised our debt position estimate higher to N224 billion (prior estimate of N171 billion).
Table 1: Terms of Original Intercompany Loan Proshare Nigeria Pvt. Ltd. On interest expense, we have adjusted our financing cost over the forecast period for the restructuring premium, which necessitated 20bps average upward revision to our forecast interest rate and have thus raised interest expense for FY 18 to N35 billion and associated
FX loss of N7.4 billion, with overall net finance cost of N40.9 billion (previously: N39.2 billion). Net adjustment of the revision culminated into a loss after tax of N9.5 billion (prior: N8.3 billion).
Table 2: Balance of Shareholder Loan Pre and Post 2017 Rights Issue Proshare Nigeria Pvt. Ltd. Rights Issue, still financing short term obligations
With the company’s loan from its parent conveniently aligned via restructuring, the management is now […]