Nairametrics| UAC, one of Nigeria’s oldest conglomerates has two of its subsidiaries looking to raise a total of N6 billion. Livestock Feeds is seeking to raise N750 million, while real estate company UPDC is in the equity market for N5.1 billion. Both companies have large debts which they want to offset. Raising capital is no guarantee for the shareholders or the parent company UACN that the businesses will come on track. They have problems that money can’t necessarily solve.
For livestock feeds, the projected sum of N750 million does not cover inter company debts lent it by UAC and other companies in the UAC Group. The company borrowed a total of N1.8 billion from UAC and its sister companies. The funds were meant for stockpiling raw materials and to boost its working capital. While some of the funds were for a duration of 90 days, the company has not stated if it will be able to pay such loans on time. A delay in paying them will have adverse effects on the other companies that are struggling with a difficult macroeconomic environment. Bank borrowings also totalled N2.2 billion as at December 2016.
A look at the company’s statement of value added shows that it spent 40% on bank interest and 30% on salaries, wages, pensions and social benefits. Add 6% for taxes and 11% provision for depreciation and shareholders are left with just 13% of its profit. The company may have to rationalize its labour force or find a way to increase revenue generated.
UPDC’s rights issue is the least of the company’s issues. The real estate company has retained earnings of N29 billion but is seeking to raise a bit over N5.1 billion. UPDC would be better of using its retained earnings to pay down its debt. Even at that, the company has a long way to go. Loans due in one year stood at N18.6 billion. Income made in 2016 came to N4.9 billion. Its receivables from UPDC Hotels Limited may continue to grow as the hotel is currently running at a loss, with UPDC having to write down N1.2 billion of its over N14 billion investment in the hotel.
UPDC has made most of its revenue for the past two years from sale of property stock. The company made revenue of N6.3 billion in 2016, with sale of property stock accounting for N4.2 billion. In 2015, sale of property stock totalling N2.7 billion accounted for over 50% of its revenues of N5.1 billion. The downturn in the economy means possibilities of making such revenue this year are highly unlikely. Both companies need to restructure their operations.