- Lafarge Africa Plc is selling its South African operations for $317 million to Caricement B.V
- The company will use proceed from the sale to pay-off a related-party loan, amounting to $293 million.
- Competitive environment, slow recovery and struggle to defend market share affect Lafarge SA operations
Lafarge Africa Plc says it will sell South African operations for $317 million to pay-off a related-party loan, amounting to $293 million.
Lafarge, in a corporate filing on Wednesday, said the transaction will be with Caricement B.V, an indirect subsidiary of Lafarge Holcim Limited.
“The Proposed Sale is expected to enhance the value of shareholders‟ investments in Lafarge Africa. The proceeds of the Proposed Sale (US$317m) will be used to completely extinguish Lafarge Africa‟s shareholder loan of US$293 million as at July 31, 2019, and related interest due.
“This full repayment of the shareholder loan will protect and preserve Lafarge Africa‟s net Income and cash flows. The improvement in cash-flow and net income, resulting from the reduction in debt service outflows, will enable Lafarge Africa to consider additional investments in cement production capacity and to improve its market share in Nigeria.”
“The terms of the transaction to the shareholders for consideration at the 60th Annual General Meeting in July, as a special business, which will be voted on by way of an ordinary resolution in accordance with regulatory laws,” the statement reads.
The transaction is expected to be completed in the third quarter of 2019.
Lafarge South Africa assets
Business Insider SSA by Pulse understands that by this transaction, Lafarge Africa Plc will be disposing of its 73% equity shareholding in Lafarge Mining South Africa, 79.7% of the equity shareholding in Lafarge Industries in South Africa and 70.1% of the equity shareholding in Ash Resources Limited in South Africa.
Competitive business environment affects Lafarge South Africa operations
The company said competitive environment, slow recovery and struggle to defend market share have heightened market pressure to reduce prices, significantly impacting its operations in recent years.
In the first quarter of 2019, the South African Cement market recorded flat volumes and the retail market exchange went down due to delay in infrastructure spending, the company said in its Q1 2019 financial statement. The market was also affected by an increase in cement prices and FX translation.
What does this mean for Lafarge Africa Plc shareholders?
Lafarge Africa Plc said the proposed sale will boost the company‟s profitability, through positive cash flow generation, reinvest in (and expand) operations in existing plants.
The company says it will also devote more attention to its Nigerian operations (which recorded a positive trend in Q1 2019) and strengthen its balance sheet as well as reduce its debt.