The Boards of Directors of UAC of Nigeria Plc (UAC) and UACN Property Development Company Plc (UPDC), have jointly announced plans to carry out some strategic initiatives involving a recapitalisation and restructuring of UPDC.
These initiatives are subject to the review and approval of the Securities and Exchange Commission (SEC), the Nigerian Stock Exchange (NSE), and shareholders of both companies.
UPDC’s initiatives: UPDC commenced operations as a department and subsequently a division within UAC focused on managing UAC’s real estate holdings. In 1997, UPDC was incorporated as a public limited liability company and certain assets held by UAC were transferred to UPDC via a scheme of arrangement: UPDC’s shares were listed on The NSE on 19 November 1998.
Over the years, UPDC grew to become one of Nigeria’s leading indigenous real estate companies, engaged in a broad range of activities including property development for sale and lease, facilities management, hospitality and retail. UPDC has built a long-standing track record, having completed multiple landmark residential and commercial developments.
[READ MORE: Folakemi Fadahunsi announced as UACN’s new Director]
UPDC’s recent expansion coincided with the recession that impacted Nigeria in 2016 affecting overall economic activity. The real estate sector was particularly affected with significant declines in asset values and rental rates. Nigeria’s broader economy emerged from recession in Q4 2017; however, the real estate sector has continued to struggle, with declining investment values, reduced demand for assets, and high vacancy rates. UPDC has been negatively impacted by the extended decline in the Nigerian real estate sector recording losses annually since 2016. In addition, the Company struggles with high levels of debt, which combined with declining revenues and profitability have resulted in cashflow challenges to meet its obligations. UPDC’s underperformance has resulted in a decline in equity value and restricted the Company’s ability to pay dividends.
The Board and management at UPDC have focused on developing strategies to stabilize UPDC’s capital structure and unlock value for shareholders. Two significant strategic initiatives are currently proposed, a recapitalization and a concurrent restructuring.
The recapitalisation: This involves an equity capital raise of N15.96 billion by way of a rights issue to repay its short-term debt obligations. For UPDC to attain sustainability, the focus is on reducing outstanding debt to a level at which it is serviceable from recurring cash flows. This will require a significant cash injection which is to be raised through the Rights Issue.
Post the Rights Issue, UPDC’s only interest-bearing obligation will be its long-term bond with total outstanding balance of N4.3 billion.
Restructuring: An ownership structure reorganization, that will involve UPDC’s interest in UPDC Real Estate Investment Trust (UPDC REIT or the “REIT”) being unbundled to UPDC shareholders via the allocation of REIT units directly to shareholders of UPDC in proportion to their post-Rights Issue holdings in UPDC (“UPDC Unbundling’).
The REIT was listed at N10 per unit in July 2013 and traded at N5.40 per unit as at 2 September 2019, a 46% decline in value. In spite of a track record of dividend payments, the diminution in unit price has resulted in an erosion of unit-holders value. In addition to investor concerns around operations and management of the REIT, an often-cited challenge has been limited liquidity with UPDC owning more than 60% of the units in the REIT. The restructuring is expected to materially increase free float and liquidity in REIT units.
A second component of the restructuring is the immediate release of value to UPDC shareholders, who will benefit from a direct interest in the UPDC REIT, which is profitable and has a track record of dividend payments. Since 2016, UPDC has received about N3 billion in aggregate dividends from its investment in the REIT; however, on account of the Company’s challenges, it has paid no dividends to its own shareholders over the same period. Post the proposed restructuring, any future dividends from the REIT will flow directly to UPDC shareholders.
As a consequence of the UPDC Unbundling, UPDC shareholders will be allocated an asset with a current market value of N8.9 billion i.e. value of UPDC’s units in the REIT based on current market prices on The NSE. UPDC’s share of the REIT’s 2018 dividends amounted to N936 million and similar dividends will flow directly to shareholders of UPDC. UPDC carries its interest in the REIT at N20.6 billion which is its share of the REIT’s Net Asset Value. The N11.7 billion difference between the carrying and listed values of UPDC’s interest in the REIT will be passed through UPDC’s accounts as a non-cash charge.
UAC Initiatives: On the other hand, the Board and management of UAC are in the process of a strategic review, evaluating the performance of UAC and its subsidiaries. The objective is to achieve sustainable positive financial performance from its existing operations and enable management focus on businesses that align with its strategy.
In reviewing UPDC, the Board looked at the long-term opportunities in the Nigerian real estate sector as against the fundamental differences between the cashflow profile and capital needs of UPDC versus other entities in UAC’s portfolio. Following its review, the Board concluded that it would be in the best interest of respective stakeholders of UAC and UPDC if UAC’s equity interest in UPDC is ‘unbundled’ such that UAC no longer holds any shares in UPDC (UAC Unbundling), and UPDC operates as a standalone legal entity, free to source appropriately structured capital.
Pursuant to the UAC Unbundling, the ordinary shares that UAC holds in UPDC post-Rights Issue will be transferred pro-rata to all UAC shareholders, who will hold such UPDC shares in addition to their existing equity interests in UAC. UAC will cease to be a shareholder in UPDC, and UPDC will cease to be consolidated UAC’s financial statements.
On account of UPDC’s unbundling of its interest in the UPDC REIT, post the implementation of the respective strategic initiatives described above, each UAC shareholder will hold shares in three separate entities – UAC, UPDC and the UPDC REIT benefitting from the future prospects of each.
UAC intends to support the Rights Issue such that the standalone UPDC has a much healthier balance sheet.
Consequences of the UAC Unbundling and UPDC Unbundling: If the Rights Issue, UPDC Unbundling and UAC Unbundling are successfully implemented (following the approvals of Regulators and shareholders), it is expected that:
- UPDC will no longer own any units in the REIT. UPDC REIT will cease to be an associate company of UPDC
- UPDC shareholders will become direct unitholders in the UPDC REIT in addition to their shares in UPDC
- UPDC will cease to be a subsidiary of UAC
- UAC shareholders will become direct holders of shares in UPDC and units in the UPDC REIT
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FG discusses nation’s carrier, Nigeria Air with US Ambassador
The FG has held a discussion with the US government over the establishment of a national carrier for Nigeria.
The federal government has held a discussion with the government of the United States of America over the establishment of a national carrier for Nigeria.
This was disclosed by the Minister of Aviation, Hadi Sirika via his Twitter handle after he held a discussion with the Ambassador at the United States Embassy in Abuja.
He tweeted, “We took the opportunity to discuss investments and opportunities in the aviation sector, including national carrier. The partnership looks promising. USA is the only country we have open skies with. Thanks, Ambassador Mary and the team.”
What you should know
In July 2018, the Federal Government unveiled the branding and livery for the new airline, Nigeria Air, and stated that the carrier would be inaugurated at the end of that year.
Sirika unveiled the carrier at a press conference during the Farnborough Air Show in London that year.
“I am very pleased to tell you that we are finally on track to launching a new national flag carrier for our country, Nigeria Air. We are all fully committed to fulfilling the campaign promise made by our President, Muhammadu Buhari, in 2015. We are aiming to launch Nigeria Air by the end of this year,” the minister had said.
He also stated that the government had obtained the Certificate of Compliance from the Nigerian Infrastructure Concession Regulatory Commission and would go into investor search.
SERAP asks Buhari to probe N39.5 billion duplicated, mysterious projects
SERAP has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.
Socio-Economic Rights and Accountability Project (SERAP) has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.
This is to know if public funds have been diverted in the guise of implementing the projects and prosecute those allegedly involved including those from the executive and the National Assembly.
The request from SERAP follows a report from BudgiT last week, where they alleged that there are 316 duplicated capital projects worth N139.5 billion in the 2021 budget.
This disclosure is contained in a public statement issued by SERAP on Sunday, May 9, 2021, and can be seen on its website.
SERAP said that the investigation of the alleged duplicated and mysterious projects, which are part of the 2021 appropriation bill of N13.588 trillion, should establish whether public funds have been mismanaged, diverted or stolen in the guise of implementing these projects.
What SERAP is saying in its letter
In the letter dated 8th May 2021 and signed by SERAP, Deputy Director, Kolawole Oluwadare said: “The misallocation of public funds for duplicated and mysterious projects has seriously undermined the ability of the indicted MDAs, and the government to ensure respect for Nigerians’ human rights through developing and implementing well-thought-out policies, plans, and budgets.”
The letter from SERAP partly reads, “BudgIT had in a report last week stated that there are 316 duplicated capital projects worth N39.5 billion in the 2021 budget. The duplicated and mysterious projects are contained in the 2021 appropriation bill of N13.588 trillion signed into law in December 2020.”
These damning revelations suggest a grave violation of the public trust, and Nigerians’ rights to education, health, water, sanitation, and clean and satisfactory environment because the indicted MDAs have misallocated public funds at the expense of the people’s access to basic public services, and enjoyment of rights.”
SERAP urges you to ask the heads of the MDAs involved to explain why they allegedly failed to ensure strict compliance with constitutional and international standards of transparency and accountability in the preparation, processes and decisions on their budgets, and to return any misallocated public funds to the public treasury.”
Investigating and prosecuting any allegations of mismanagement, diversion and stealing of public funds budgeted for the 316 duplicated and mysterious projects would allow your government to use the budget to effectively promote Nigerians’ access to essential public goods and services.”
Publishing the ‘implementation status’ of the duplicated and mysterious projects would allow Nigerians to hold their government to account in the spending of public funds. This is particularly true for marginalized and excluded groups, such as people living in poverty, women, children, and persons with disabilities, as the budget has a disproportionate impact on their welfare.”
We would be grateful if the recommended measures are taken within 14 days of the receipt and/or publication of this letter. If we have not heard from you by then, the Incorporated Trustees of SERAP shall take all appropriate legal actions to compel your government to comply with our request in the public interest.”
SERAP also urges you to direct Mrs Zainab Ahmed, Minister of Finance Budget and National Planning to publish full details of current ‘implementation status’ of the duplicated and mysterious projects, and any spending on the projects to date, including the 115 projects inserted in the budget of the Ministry of Health; the 23 projects inserted in the budget of the Ministry of Education, and 10 projects inserted in the budget of the Ministry of Water Resources.
The following ministries are reportedly involved in the duplicated and mysterious projects: Ministry of Health with 115 projects; Ministry of Information and Culture with 40 projects; Ministry of Agriculture and Rural Development with 25 projects; Ministry of Education with 23 projects; Ministry of Transportation with 17 projects; and Ministry of Science and Technology with 17 projects.”
Others are the Ministry of Environment with 13 projects; Ministry of Power with 11 projects; Ministry of Labour and Employment with 11 projects, and Ministry of Water Resources with 10 projects.”
The letter was copied to Mr Malami; Professor Bolaji Owasanoye, Chairman Independent Corrupt Practices and Other Related Offences Commission (ICPC); Mr Abdulrasheed Bawa, Chairman, Economic and Financial Crimes Commission (EFCC); and Mrs Ahmed, the Finance Minister.
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