Lafarge Africa Plc, Nigeria’s second largest cement manufacturer, has informed the Nigerian Stock Exchange (NSE) that the recent devaluation of the naira will cost the company as much as N28 billion. This is because of the US Dollar (USD) denominated loans that it has taken prior to the devaluation of the naira from an average of N199 to USD to the current N284 to the USD.
Lafarge Africa disclosed that at the time of devaluation it had US$310 million in shareholder loans and another US$ 85 million in external loans, making total dollar denominated loan book of US$395 million. The recent devaluation of the naira means that the value and cost of servicing the loans have risen by an average of 42%, representing the rate with which the naira has fallen since the devaluation. For example, At N199 to the US$, the naira equivalent of the company’s loan book stood at N78.6 billion but after devaluation, the naira of equivalent of the company’s US$ loans now stand at N112 billion, representing an increase of N33 billion.
Many Nigerian companies with dollar denominated loans are in similar situation.
But Lafarge Africa says that the ballooning of its debts due to the devaluation of the naira will not have any immediate impact on its cash flow, perhaps because the loans are not due for repayment. Though the company says it is going to make a loss in its second quarter 2016 results, which is still being expected, because it has to start making provisions for the higher debt in naira it now has to pay. The company also says that shortage in gas supply has also affected production volumes, which will contribute to its making a loss in the second quarter.
However, the company says it is very positive about the future especially due to the completion of its 100% acquisition of Unicem, which is strategically located in Calabar, Cross River State, and is a major cement plant in the South South and South East region. Unicem currently has a capacity for 2.5mm tonnes of cement but it is expected to double production with the commissioning another 2.5mm tonnes in the second half of 2016. Larfarge Africa management says it is also considering refinancing its dollar denominated debts after it recently refinanced N60 billion in naira debts through a bond issuance.
Financial analysts tell Money Issues that it will be smart for Lafarge Africa to refinance its dollar denominated debts through a naira bond issuance programme since the outlook for the naira exchange rate is not positive and considering the company’s earnings are mainly in naira. A dollar denominated debt will not be positive for the company’s outlook going forward.
