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In the past five years, UACN Property Development Company Plc (UPDC) has been recording recurring losses, an unimpressive performance that lays credence to the fact that the real-estate industry is beset by poor macroeconomic conditions.
For instance, the company posted a net loss of N603.29 million in June 2021 from N2.90 billion losses the previous year.
Of course, revenues have also been nosediving, and the steepest fall was in 2016, a period that coincided with the country’s first recession in 25 years, as the sharp fall in crude oil prices of 2014 stoked a severe dollar scarcity. (see charts).
UPDC and other sector players were hard hit by the coronavirus pandemic that paralyzed business activities and significantly disrupted construction and real-estate activities, tipping the country into its second recession in less than five years in the second quarter of 2020.
There will not be strong demand for housing in 2021 because consumer wallets have been squeezed by high utility bills, inflationary pressures, and spiraling unemployment rate.
Also, the sector is beset by legacy issues such as elevated cost of building materials, Land acquisition difficulties, and incessant devaluation of the currency.
The housing deficit in Nigeria has been torn in the flesh of the government.
According to the most recent figures from the Nigeria Mortgage Refinance Company (NMRC), Nigeria’s housing gap is thought to be in the region of 23 million units.
In a bid to overcome the high mortgage financing problem, the government launched NRMC as part of measures to boost liquidity for funding housing development and purchase.
In November last year, the Nigeria Mortgage Refinance Company (NMRC) issued a N10 billion 7.20% Series 3 Fixed Rate Bond to boost funding for an affordable mortgage.
There is light at the end of the tunnel for UPDC as debt in its balance has reduced, which means that an improvement in sales could result in it reverting to the path of profitability.
Finance costs reduced by 85.50 percent to N440.64 million in June 2021, from N3.05 billion in 2017. Total debt fell by 74.14 percent to N5.84 billion in the period under review from NN22.60 billion in 2016.
In 2020, UPDC successfully raised N1 billion through its rights issue- which was oversubscribed-at the Nigerian Stock Exchange. It said that the proceeds from the rights issue had been used to improve UPDC’s capital structure and position the company for growth.
Custodian Investment Plc has also concluded the first tranche of its planned purchase of UPDC, a deal that was first announced in August 2020.
Included in its financial assets is N823.51million for 946,558,467 units of UPDC Plc shares at an initial cost of N666.15million representing 10 percent of Custodians total anticipated holding in UPDC Plc.
“Per the binding sale and purchase agreement with UACN Plc, the parent of UPDC Plc, the company is irrevocably committed to acquiring approximately 51% of the issued share capital of UPDC Plc but will not control its day to day operations,” Custodian said in a statement.
In June 2021, Custodian investments, currently the majority shareholder in UPDC holding 51 percent of the total issued and paid-up capital of UPDC launched a mandatory take-over offer to acquire up to 34,415,332 ordinary shares at N0.90 per share, representing 3.02 percent of the total minority shareholding of UPDC.
Custodian is offering to acquire shares from the minority shareholders of the Company, on a voluntary basis, provided that Custodian shall not be required to acquire any shares in excess of such number of shares as would take Custodian’s aggregate interest in UPDC up to a maximum of 51.1 percent of the issued and paid-up share capital of UPDC.
The Board of Directors of UPDC in recommending the Offer to the shareholders, said:
“it considers the terms of the Offer to be fair and reasonable and that it presents a great opportunity for shareholders to realize liquidity at an attractive valuation.”