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UPDC fiasco leads UACN to report N15.8bn loss on significant impairment of investment

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UACN reported revenue of N2.15 billion and operating loss of N1.26 billion for the 2019 period. Total comprehensive Loss for the year came in at N15.8 billion as a result of a N12.6 billion write down on an investment in an associate company (UPDC).

Details of UPDC fiasco

In 2019, there was a joint announcement by the parent company (UAC of Nigeria Plc) and UACN Property Development Company Plc (UPDC Plc) as regards the unbundling of UPDC Plc’s interest in its associate company, (UPDC REIT) to UPDC Plc shareholders.

This involved a restructure in the ownership by allocating its interest in associate shares directly to the shareholders of UPDC Plc in proportion to the post- Right issue holdings in UPDC PLC.

The result of the joint announcement is yet to be implemented as at year end, but this led to a huge decline in the market/fair value of UPDC quoted shares from N5.4 per unit as at 2 September 2019 to N4.25 per unit as at December 2019.

The REIT was listed at N10 per unit in July 2013 and the Company had been carrying the investment at cost. The diminution in the unit price has thus resulted in an erosion of the unit holders’ value.

An impairment loss of N12.64 billion and N9.48 billion was recognised in the current year for the Group and the Company respectively.

The Group’s carrying value includes share of profit from the Associate over the years, and this resulted in a higher diminution in value when compared with the unit price as at 31 December 2019. The investment in associate has been accounted for as an asset held for distribution in line with IFRS 5 and measured at the lower of the carrying amount and fair value less cost to sell.

Inventory write-down

During the year, the Company’s inventory (assets under construction) in respect of Victoria Mall Plaza (VMP) and Victoria Mall Plaza (VMP) was written down by N1.2 billion (2018: N0.594 billion) to its net realisable value based on the expected selling price and other incidental costs to sell.

UACN Management is putting the inventory up for sale and based on the offers received from prospective buyers, the asset was written down by N1.2billion from a carrying cost of N4.275billion to a Net realisable value of N3.067billion.

According to UACN a valuation carried out by the Estate valuer as at 31 December 2019 showed fair value of N4.6 billion for the asset, however this differs significantly from the offers being received from prospective buyers, as none of them intends to continue with the current structural design on the property.

Hence the significant write down.

Conclusion

Management has clearly not done a good job regarding judgement on the REIT unbundling. Management is also top heavy in terms of personnel expenses for 2019 of N345million of which management received N323 million, while rest of the staff received N22.2 million.

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