Honeywell Nigeria Plc has been in the news lately over its indebtedness to First Bank Plc. The Central Bank issued a query to the bank last week asking that it recover the loans within 48 hours while also divesting from its equity interest in the company.
Honeywell in turn issued a press release claiming that its First Bank loans are being serviced and that it has paid down the loans by 30% over a two-year period.
“Honeywell Group has continued to meet all its obligations on its facilities with the Bank according to agreed terms and has reduced its exposure by nearly 30% in 2.5 years. The facilities were charged at market rates and the Bank continues to earn significant interest therefrom.”
As of December 2020, Honeywell reported total loans of N59.4 billion out of which N23.5 billion are non-current loans and the balance N35.8 billion, current loans. The current loans are also designated for Import Finance Facilities.
In its full-year results for the period ended March 2020, Honeywell explained its N58.2 billion loans (at the time) were divided into term loans and overdrafts (N2.9 billion). The list of banks who have lent money to Honeywell includes First Bank, Fidelity Bank, Bank of Industry, and Polaris Bank. The totality of First Bank’s loan to Honeywell was not reported explicitly in its annual or interim reports, however, it did disclose that the current portion of its loans to First Bank was about N13.5 billion including the overdraft facility of N2.9 billion.
How Honeywell intends to repay its FBN loan
Nairametrics gathers Honeywell intends to repay its loans via a corporate bond issuance which it announced back on March 18th 2021. In a press release, the company stated that its Board of Directors had approved “the initiation of a Commercial Paper Program and a Medium-Term Note Program for the purpose of refinancing/restructuring the Company’s debt profile,” which suggests this is how it plans to repay the loans.
Debt issuance will typically take 3 to 6 months to consummate which might put the company on a collision course with the central bank. The CBN in its letter to First Bank demanded that Honeywell repay its loans to First Bank within 48 hours (from April 26th) failing which it (CBN) would “take appropriate regulatory measures against the insider borrower and the bank” which means it could send AMCON to make a move on the company in order to recover the loans for depositors of the bank.
Despite the debacle, Nairametrics analysts expect an amicable solution to the disagreements over the next few days and weeks as tempers cool off. Honeywell will likely tap into the thriving bond market to raise enough funds to repay the loans.
While CBN pressures remain an immediate concern, its next challenge will be to convince potential bond buyers that it can generate enough cash flows to service the bonds in a timely manner. Honeywell generates an operating profit before finance cost of about N5.5 billion and generates around N4.8 billion in free cash flow according to details of its third-quarter results.