Dangote Cement to repurchase shares as equities market slump. Dangote Cement Plc has initiated move to repurchase its own shares from the market as equities market condition worsen.
The leading cement company notified the Nigerian Stock Exchange www.nse.com.ng about the Board’s share buyback arrangement as part of its strategic course targeted at improving shareholders welfare.
The equities market closed in the red this week despite a 125 basis points gain on Friday. The NSE All-Share Index lost points on 2 of the 3 trading sessions in the week, declining 0.4% week on week to settle at 26,416.48 points.
Equities market year to date loss widened to 16.0% as market capitalisation fell by N51.3 billion week on week to close at N12.6 trillion on Friday.
This week, the management released guidelines and explanatory statements regarding the company’s Share Buy-Back programme, looking to purchase estimated of 1.704 billion ordinary shares or 10% of its 17.040 billion outstanding shares.
The decision would strengthen the cement company’s share price after full implementation, analysts said.
According to the company’s release, the management said that the programme is to be completed within 12-months.
Of the outstanding shares, Aliko Dangote, the Chairman of the group owns about 86% valued at about N2.05 trillion on 27th December, 2019.
Analysts explained that Dangote Cement seems to be taking this step as a result of inability of the stock market to reward performance.
“Though the current market capitalisation of the Dangote Cement Plc with ticker DANGCEM stood at N2.385 trillion, the company shareholders have lost 24.73% of its opening share price to date”, analysts told MarketForces.
The stock market review shows that DANGCEM was priced at N189.70 at the beginning of the year, peaked at N205 before it dropped to its lowest year low of N140 which incidentally happens to be its current price.
The Africa’s largest cement maker says Share Buy-Back pricing is to be based on prevailing market price; offer price to be determined by Board, but not higher than 5% above average calculated market price over 5 days preceding the offer issues.
Meanwhile, the notice of special shareholders meeting is due to hold for January 22, 2020 in Lagos to ratify the propose scheme for share capital restructuring and purchase of own shares (share buy-back) programme.
The management stated that the share buyback will be undertaken subject to the availability of share. However, the company is not obliged to buy all or any of the repurchase shares.
According to the release, the Board seeks to increase long term shareholders value having reviewed its stock market performance in line with prevailing equity market condition.
DANGCEM accounts for 19% of the equities capitalisation, commanding N2.385 trillion of the stock market valued at N12.6 trillion.
The Board is of the opinion that at the current market valuation level, a share repurchase programme is consider as appropriate capital allocation decision.
In addition, the management is of the view that the programme supports Dangote Cement’s continuous capital structure and balance sheet optimization process.
The management stated that repurchasing shares while improving, capital and balance sheet efficiency is expected to reduce the average cost of capital and therefore enhance shareholders value.
The share repurchase is expected to reduce the numbers of shares outstanding and increases the proportional right of shareholders. The company said it intends to fund the programme from its reserves.
Management is of the view that the repurchase programme would not have adverse effect on the cement company working capital or gearing ratio in the long term.