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UPDATE 1-South Africa's Tiger Brands cuts off funds to Nigeria's DFM
November 16, 2015 / 1:56 PM / 2 years ago

UPDATE 1-South Africa's Tiger Brands cuts off funds to Nigeria's DFM

* Tiger Brands also reviewing investment in DFM

* DFM shares drop 4.7 pct

* Tiger Brands up more than 7 pct (Adds DFM shares, Dangote resigns from DFM board)

By Tiisetso Motsoeneng

JOHANNESBURG, Nov 16 (Reuters) - South African consumer goods maker Tiger Brands has cut off funding to its Nigerian division as part of a wider review of its investment in the struggling pasta and flour maker, it said on Monday.

Tiger Brands has not made money from Dangote Flour Mills (DFM) since paying nearly $200 million for a 65 percent stake in the firm three years ago as part of broader strategy to expand in sub-Saharan Africa.

“Tiger Brands has decided not to provide further financial support with respect to its investment in Tiger Branded Consumer Goods plc of Nigeria,” the company said in a statement.

Tiger Brands also said it was reviewing its investment in the business. One industry source said its options were limited because “buyers aren’t exactly lining up” to take its stake.

Dangote Industries, owned by Africa’s richest man Aliko Dangote, holds a 10 percent equity stake in the company. Dangote and three other directors resigned on Monday from DFM following Tiger Brands’ announcement.

Tiger Brands wrote down the value of DFM twice last year for a total 954 million rand ($66.3 million) as the business suffered from tough competition and a weakening naira currency.

“Without Tiger Brands injecting money, it is the end of the line for DFM,” said Investec Securities’ analyst Anthony Geard.

Shares in DFM fell 4.7 percent to 2.41 naira by 1311 GMT, giving it a market capitalisation of 12.64 billion naira ($63.5 million), or less than half its net debt of about 30 billion naira.

Shares in Tiger Brands, however, climbed 7.7 percent to 335.00 rand by 1313 GMT, putting them on course for their biggest daily percentage gain seven years and outpacing a slightly higher JSE Top-40 index.

Tiger Brands, which makes bread, breakfast cereals and energy drinks, bought the business as part of a plan to expand elsewhere in Africa to offset slow growth at home.

In a bid to turn DFM around, Tiger Brands mothballed some of its mills and introduced new, higher margin products. Those efforts were dealt a blow late last year when Nigeria devalued the naira, resulting in higher input costs that could not be fully recovered in a competitive market.

For Tiger Brands, the move to cut financing would free up cash and enhance earnings in the short term. But it could also set it back in building a business in Africa’s most populous country and biggest economy.

“In the longer term, Nigeria will probably be a good place to be if you have scale but Tiger Brands would probably have to refinance Dangote and probably take it a step forward by, for example, going into baking,” Avior Capital Markets’ analyst Jiten Bechoo said.

Tiger Brands’ other businesses in Nigeria, Deli Foods and UAC Foods, will not be affected by the review. Tiger Brands competes with Nestle Nigeria. ($1 = 14.3860 rand) ($1 = 198.9500 naira) (Additional reporting by Chijioke Ohuocha in Lagos; editing by David Clarke)

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