Shares of Nigeria’s oldest conglomerate UACN gained 7.14percent, a day after it announced the signing of a binding agreement with Custodian Investment for the purchase of a 51percent equity interest in UACN Property Development Company plc from UAC. This is the biggest daily gain since June 29 when it gained 7.38percent.
Highlights of the agreement include the sale of 9.46billion units of ordinary shares held by UAC, representing 51percent of UPDC’s issued share capital, to Custodian.
The shares will be sold in two tranches with initial sale of 946.56million shares, representing 5.10% of the issued share capital of UPDC, on execution of binding transaction agreements, and the subsequent sale of 8.52billion shares, representing 45.90% of the issued share capital of UPDC upon receipt of requisite approvals.
After streak of unimpressive performance,UACN unveiled plans to restructure and recapitalize UPDC.
As part of its recapitalization exercise, it recently concluded its N15.96billion right issue program for its existing shareholders. The Rights Issue was done on the basis of 43 new ordinary shares for every 7 ordinary shares held by the company shareholders as at September 30, 2019.
It is also expected that at the end of the restructuring exercise, UAC will unbundle its 64.16percent interest in UPDC such that UAC will cease to be a shareholder in UPDC and UPDC will no longer be consolidated in UAC’s financials.
By implication, the ordinary shares of UAC in UPDC will be transferred, on a pro rata basis to all UAC shareholders who willhold such UPDC shares in addition to their existing shares in UAC also UAC shaeholders will become direct shareholders of UPDC and hold units in the REITS.
And for UPDC, it will unbundle its 61.5percent majority stake in REIT such that all units owned will be apportioned to UPDC shareholders on a pro-rata basis. This means UPDC as a company will no longer own any units in REITS, while shareholders of UPDC will now become direct unit holders in the REITS and benefit individually from a direct interest in REITS.
In addition REITS will become a standalone entity where individual unit holders can benefit directly from its dividend cashflow. This means REITS will cease to be an associate of UPDC.
Presently, UAC controls 64.16percent stake in UPDC, the real estate subsidiary of UAC. UPDC has 61.5percent stake in UPDC Real Estate Investment Trust (REIT) and unlike UPDC which was enmeshed in losses since 2016, UPDC REIT is profitable and has a track record of consistent dividend payments.
Folasope Aiyesimoju, group managing director of UAC, said the transaction is a significant step in achieving its objectives for UPDC.
”The Board weighed the long-term opportunities in the Nigerian real estate sector against the fundamental differences between the cash flow profile and capital needs of UPDC and those of the other entities in UAC’s portfolio. Following its review, the Board concluded that it would be in the best interest of UAC to exit its interest in the real estate sector, allowing UPDC to operate as a standalone legal entity, free to source appropriately structured capital and to unlock value for its shareholders,” he said.
On his part, Wole Oshin, group managing director of Custodian Investment PLC, said the transaction will provide Custodian with a platform to capture arising real estate opportunities.
“It also immediately provides recurring cash flow visibility and attractive yields as a result of its direct exposure to Nigeria’s leading real estate investment trust (“UPDC REIT”) with a track record of profitability and annual dividend distribution which offers a good compliment for our product portfolio,” he said.
