Forex: Lafarge hedges $300m with CBN for futures contract

…To open N140bn rights issue by October

In order to guard against further foreign exchange (forex) losses, Lafarge Africa Plc has hedged $300 million with the Central Bank of Nigeria (CBN) in non-deliverable Futures contracts just as it plans to float N140 billion  Rights Issue to reduce its initial hard currency exposure.

A ccording to its Chairman, Mr Bolaji Balogun, who disclosed this Wednesday at the company’s 58th Annual General Meeting (AGM) in Lagos, the company is embarking on a Rights Issue “to reduce its exposure to adverse foreign currency translation losses as experienced in 2016, following a 40 per cent depreciation of the Naira against the US Dollar.”

He stated: “The acquisition of 100 per cent equity ownership in United Cement Company Nigeria (Unicem) meant that we inherited the foreign currency debts which were primarily utilized for the erection of the additional capacity. This debt exposed the company to significant currency translation loss following the 40 per cent devaluation of the Naira against the US Dollar in June 2016. With the support of LafargeHolcim, we took some short term remedial action in the third quarter of 2016, to ensure that the company was shielded from the impact of any further currency devaluation.”

Giving reason for the proposed rights issue, Balogun explained that it would be an important step in resolving the foreign currency exposure and its impact on the company’s earnings.

He told the shareholders: “You may be aware that the company has not raised equity since 2005, with all our investments financed with internally generated funds and debt provided by the majority shareholders, other lenders and bondholders.In addition to reducing our debt, the rights issue to raise, up to,N140 billion provides all our of shareholders the opportunity to increase their investment in the company.

“The recapitalisation is positive and our largest shareholder, LafargeHolcim have committed to subscribing to their rights in full through a conversion of existing shareholder loans.It reduces  our foreign currency exposure by approximately half, improves our cash flow and positions the company for our future capacity expansion plans

“We decided that approximately 50 per cent of our foreign currency debt will be repaid, and to minimise further translation losses, we hedged $300million with non-deliverables Futures contracts entered into with the CBN.”

Balogun then urged the shareholders to take their rights if the  foreign currency exposure if the company’s entire foreign currency exposure is to be resolved”.