Nampak lets go of hedging grip
Company dispenses with trading safeguards for cash balances in Nigeria after new exchange unlocks liquidity
Nampak CEO Andre de Ruyter says the company has decided not to hedge its cash balances in Nigeria as it has become far easier to repatriate funds from the West African state.
The introduction of the Nigerian Autonomous Foreign Exchange (Nafex) market in April had "unlocked significant liquidity" in the country, De Ruyter said. "Consequently we don’t anticipate that extracting cash out of Nigeria is going to be a problem going forward."
In the end-September year, Nampak repatriated $79m from Nigeria, ahead of its earlier forecast of $54m. In so doing, it reduced its cash balance in the country by 16% to R828m.
Previously, all foreign exchange transactions were facilitated by Nigeria’s central bank, which "kept a tight lid on these transactions" and used the interbank foreign exchange fixing rate.
The Nafex market allows for more competitive pricing as currency buyers and sellers can transact without going through the central bank. In other words, commercial banks can now play a facilitating role in bringing together willing counterparties.
"We are not hedged in Nigeria. That was a conscious decision because those hedges are extremely expensive and we are confident now that liquidity has been restored, in terms of getting cash out."
Angola, however, was still hampered by low liquidity, he said, adding that 89% of Nampak’s cash in the country was hedged.
In the year ended September, Nampak’s foreign exchange losses fell to R160m from R681m in 2016.
Media and internet group Naspers said although monetary policies in Africa were restricting liquidity, there had been a "marked improvement in liquidity in Nigeria".
"This has allowed the group to regularly remit cash," said Naspers on Wednesday when it published interim results.
Consumer goods group Tiger Brands, meanwhile, said its export business had seen "no improvement in foreign currency liquidity".
Tiger, in its year to end-September, recorded a net foreign exchange loss of R30m. In 2016, it made a foreign exchange profit of R129m, though this was thanks to a one-off gain of R153m related to the settlement of debt in Nigeria.
Tiger’s chief financial officer, Noel Doyle, said the group’s ambitions to manufacture some South African "power brands" in other African countries, rather than export to those states, was partly in response to high trade tariffs and liquidity issues. "Those liquidity issues will [not] disappear anytime soon unless the oil price doubles," he said.