Custodian Investment Plc has signed a binding agreement with UAC of Nigeria (UACN) Plc to acquire 51 per cent majority equity stake in UACN Property Development Company (UPDC) Plc, a publicly quoted real estate subsidiary of UACN.
The parties to the transaction said the agreement marks the beginning of a partnership between Custodian and UACN that will achieve both companies’ respective objectives in the real estate industry.
It was also described as a significant milestone that aligned with UACN’s strategy to focus on its core businesses.
The transaction include sale of 9.47 billion ordinary shares of UPDC held by UACN, representing 51 per cent of UPDC’s issued share capital to Custodian.
The shares sale will be in two tranches with initial sale of 946.56 million shares, representing 5.10 per cent of the issued share capital of UPDC, on execution of binding transaction agreements. Then, subsequent sale of 8.52 billion shares, representing 45.90 per cent of the issued share capital of UPDC upon receipt of requisite approvals.
The completion of the sale is subject to regulatory approvals from the Nigerian Stock Exchange (NSE) and the Federal Competition and Consumer Protection Commission.
Group Managing Director, Custodian Investment, Wole Oshin said Custodian was excited about the possibilities arising from the partnership with UAC which provides multiple levers for value creation.
He said the rationale for the transaction was that Custodian and UAC share the view that their ambitions for capturing opportunity in the real estate industry will be better achieved working in partnership.
“UPDC is one of Nigeria’s leading real estate development companies, having completed several landmark residential and commercial developments over the past twenty years. This 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,” Oshin said.
He expressed confidence the recent recapitalisation of UPDC, significant reduction in finance costs, and recently reconstituted leadership have repositioned the company to operate sustainably and capture growth opportunities aimed at increasing stakeholder value going forward.
Group Managing Director, UAC of Nigeria (UACN) Plc, Folasope Aiyesimoju said the transaction was a significant step in achieving the group’s objectives for UPDC noting that in 2018, the board and management of UACN embarked on a strategic review to evaluate the performance of the company and its subsidiaries.
According to him, UACN’s objective was to achieve sustainable positive financial performance from existing operations and enable management focus on businesses that align with its strategy.
In reviewing 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 UACN’s portfolio. Following its review, the board concluded that it would be in the best interest of UACN 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.
In September 2019, the boards of directors of UACN and UPDC jointly announced three significant strategic initiatives aimed at strengthening UPDC and positioning the company to operate as a standalone entity.
This included a rights issue to re-capitalise the business, plans for UACN to transfer UACN’s equity interest in UPDC pro-rata to UAC’s shareholders (UPDC unbundling), and plans for UPDC to unbundle the UPDC REIT to its shareholders (UPDC REIT unbundling).
The N16 billion UPDC rights issue was successfully completed in April 2020, proceeds of which were used to reduce borrowing costs and significantly improve UPDC’s capital position.
“In the process of progressing the unbundling initiatives, UACN received a credible offer from Custodian. The terms of the offer compelled the board to re-evaluate the planned approach to deconsolidate UPDC and influenced the board’s decision to proceed with the sale of a portion of UACN’s interest in UPDC to Custodian, effectively putting an end to the UPDC unbundling. We are delighted about the positive impact that a strong anchor shareholder like Custodian will have on UPDC and are focused on ensuring a smooth transition,” Aiyesimoju said.