Cargills cashes in on low interest rate regime to set off IFC facility

Friday, 3 July 2020 00:01 - - {{hitsCtrl.values.hits}}

Rs. 2.5 b investment from IFC in Cargills Food Company in FY2015 with 9% IRR
Put liability as at 31 March 2020 amounted to Rs.3.66 billion

Diversified blue chip Cargills (Ceylon) Plc has decided to make use of the current low interest rate regime to set-off the relatively expensive Group facility worth Rs. 2.5 billion obtained in 2014/15 FY from the International Finance Corporation (IFC).

The then Rs. 2 billion IFC facility for Cargills Foods Company Ltd. (CFC) was fetched at 9% interest with a put option exercisable by February 2021. IFC had expressed interest to renegotiate and renew but Cargills (Ceylon) Plc management decided it was better to benefit from the current low interest rate regime to request IFC to enforce the ‘put’ option in the facility.

IFC has sent the exit notice to Cargills yesterday.

Put liability recorded in Group balance sheet as at 31 March 2020 amounted to Rs. 3.66 billion and the company will settle the put liability payment with local borrowings. Weighted average cost of capital of CCP in end FY19 was 11.9%.

In February 2015, IFC subscribed for 4,130,424 shares of CFC (representing an 8% stake) for an aggregate subscription price of Rs. 2,550 million. Therefore IFC is considered the investor of CFC and non-controlling interest to CCP and CCP acts as the grantor/sponsor to the contract.

CCP has granted IFC an option (the put option) to sell its shares to CCP during the put period on up to three occasions at the put price.

As per the put option agreement the put price means in relation to any given exercise of the put option, the price (calculated as of the date of settlement of purchase of the relevant put shares by the grantor) that provides IFC an IRR of 9% in local currency terms; provided that the put price shall be suitably adjusted to account for any dividends received by IFC on the put shares and there shall not be any discount for liquidity or minority stake.

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