Tiger Brands Ltd., South Africa’s largest food producer, agreed to sell its stake in an unprofitable Nigerian business to Dangote Industries Ltd, three years after buying it.
The shares surged in Johannesburg.
Dangote will provide Tiger Branded Consumer Goods Plc of Nigeria with an immediate cash injection of N10 billion ($50 million), with Tiger transferring its 65.7 percent stake for a nominal $1, the Johannesburg-based company said in a statement Monday.
Tiger will assume and settle debt that it’s guaranteed for the West African business, amounting to N5.6 billion, and will write off 700 million rand ($46 million) of loans that it granted the operation, Bloomberg reports.
Tiger last month wrote down the full value of Tiger Branded Consumer Goods, formerly known as Dangote Flour Mills, and Deli Foods, a separate business in the West African country, by 1.9 billion rand.
This added to previous impairments of 954 million rand after Tiger bought the business for about 1.5 billion rand in 2012.
Growth in Africa’s largest economy, Nigeria, has dropped to the slowest pace this decade, following a plunge in prices for crude, its main export, while currency restrictions have added to unease among businesses and investors.
“Sufficient capital will be injected into TBCG in order to stabilise the business and place it on a sustainable path,” Tiger said.
Dangote Industries is controlled by Aliko Dangote, Africa’s richest man, with a net worth of $13.5 billion, according to the Bloomberg Billionaires Index.
Tiger rallied as much as 10 percent and was 5.8 percent higher at 308.90 rand by 9:38 a.m. in Johannesburg, paring the drop this year to 16 percent.
Tiger Brands has not made money from Tiger Branded Consumer Goods Plc of Nigeria (TBCG), formerly known as Dangote Flour Mills, since paying nearly $200 million for a 65 percent stake in the firm three years ago.
In late November this year, the company said it would no longer fund the loss-making venture and would make write-downs of nearly R1.9bn as a result.
Tiger Brands bought a majority stake in Dangote to have clout in Africa’s biggest economy.
Wayne McCurrie, portfolio manager at Momentum, said Dangote was a big problem. “One can understand why they went there — they just maybe bought the wrong asset. Management sits in a difficult position. They’re very big in SA where the economy is growing at 2% and they have tons of competition — automatically they would say let’s go elsewhere into Africa where they’re growing at 5%-6%, and there’s not that much competition.
“Then they go and buy Dangote and it turns out the quality of the plant is poor,” he said.
As Africa’s biggest crude producer, the oil prices plunge has created problems for the country’s economy and its currency, fuelling inflation and lowering consumer purchasing power.
According to Nigeria’s National Bureau of Statistics, the rate of inflation rose to a high of 9.4 percent last month.
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