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Lafarge Africa looking to cement bond deal

Lafarge Africa is looking to tap Nigeria’s local currency debt markets to fund the acquisition and service the debts of another company it has taken over. Currency volatility and unfavourable yields contributed to the decision to issue in naira, as the depth of the local market provided a larger investor base.

May 3, 2016 // 5:13PM

Lafarge Africa, the subsidiary of LafargeHolcim has floated a NGN60bn (US$302mn) bond, the proceeds of which will be used to refinance the loans of United Company of Nigeria (UNICEM), which it acquired in a takeover last year.

The two tier naira bond, which will be issued through a book building process due to start this month, will be split between tranches of 2, 3 and 5 year tenors respectively.

Currency volatility and concerns amongst foreign investors likely contributed to the company’s decision to issue in naira.

“The company likely chose to issue in local currency as there is a higher chance that they can fill their orderbooks in the domestic market compared to the international market, as the fixed currency will cause difficulties for foreign investors,” said Stephen Charangwa, a Portfolio Manager at Aluwani Capital Partners.

The naira has recently performed poorly against the dollar. It currently stands at NGN199.000 to the greenback.

Earnings of the bond sale will also be used to repay a US$300mn loan from LafargeHolcim. The company is looking to refinance all of the US dollar denominated debt at UNICEM as part of the debt restructuring at the company.

Debt levels at UNICEM rose to NGN154.2bn in Q1 of the current financial year, from NGN145bn in the same period last year. 

The company has received permission from Nigeria’s Securities and Exchange Commission (SEC) to issue up to NGN100bn worth of bonds.

Charangwa noted that the company may not have raised the full amount available to it, as it could look to return to the markets at a later date. He added that the first issuance could set pricing guidelines and test investor appetite.

Lafarge Africa is currently paying yields of 16% to 18% on its domestic loans. The company is planning to reduce the servicing costs by around 4% or 5% with its upcoming bond issue.

Even these relatively high yields would struggle to find traction amongst international investors, further supporting the company’s decision to tap the domestic market. “Yields of 14% or 15% would not be enough to attract foreign investors,” Charangwa noted.

He added that there would be a premium over comparable sovereign notes, and that pricing would be attractive enough to find sufficient local support, noting that there is still considerable liquidity in the domestic market.

Lafarge Africa said it had received large amounts of interest from investors ahead of the planned book building process.   

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