UAC Property Development Company (UPDC) Plc is to get cash injections of N5.20 billion from parent company UAC Nigeria Plc in order to boost capital and ease the pains caused by an economic downturn.
A proposed right issue by the parent company will help the real estate giant realise certain assets that has been hampered by harsh operating conditions. Rising finance and input costs caused the company a loss of N1.19 billion in the first quarter of 2017.
The subsidiary needs financial support pending improvement condition to enable value preservation realisation of identified assets, according to a statement by holding company- UAC Nigeria.
“It currently suffers punitive financial charges of N500 million monthly,” the parent company said in a note to The Nigerian Stock Exchange dated May 19, 2017.
A breakdown of the financial statement of the Nigerian real estate giant shows that finance costs spiked 108 percent to N1.32 billion for the period. Cost of sales surged 216.81 percent to N1.79 billion as cost of sales ratio stood at 90 percent.
It is a torrid macroeconomic environment for operators in the real estate and property industry as liquidity shortage in the system, rising inflation, high interest rate, currency volatility and weak consumer spending have left property developers gasping for breath.
To exacerbate the already anaemic situation of these firms, commercial banks have refused to lend to real estate developers as cash crunch and battered asset quality have reduce the credit quality of the developers.
Would-be house owners and property retailers have shunned the property business because banks are unwilling to lend to them.
Nigeria’s gross domestic product contracted 0.5 per cent in the first quarter from a year earlier, after shrinking a revised 1.7 per cent in the three months through December, according to data released by the National Bureau of Statistics (NBS) on Tuesday.
The naira has remained stable at N380 to a dollar at the black market while the interbank rate is about N315. Inflation for the month of April stood at 17.20 per cent, higher than the government’s single target.
The faltering performance of the operators in the sector was highlighted in the latest GDP report by the country’s official statisticians.
Real estate GDP contracted by 3.10 per cent, according to the NBS as the sector contributed 6.32 per cent to real GDP in the first quarter of 2017, lower than the 6.48 per cent it recorded in the corresponding quarter in 2016 and still lower than 7.63 per cent in the preceding quarter.
UPDC’s price stood at N 1.95 as at the close of trading on Wednesday having gained 4.84 per cent during the trading day, valuing the company at N6.70 b billion.
“In the prevailing environment of economic challenges, recession, there would also be opportunities for additional investment in current and adjacent categories that we play in,” said UAC Nigeria, UPDC’s parent company.
BALA AUGIE
