Mboweni quizzed over currency risks at Nampak meeting

Former Reserve Bank governor Tito Mboweni.

Image source: BDlive

The shareholder activist Chris Logan interrogated the Nampak board on whether it would be prudent for the packaging giant to impair the value of its cash holdings in its sizeable operations in oil-rich Nigeria and Angola.

Speaking after the meeting, Logan reckoned Nampak could face a foreign exchange loss of up to R500m.

This follows a "disconnect" between the artificially pegged official price of the naira and kwanza against the parallel markets in those respective currencies. At last count, the kwanza was officially trading at 1.55/, compared with about 2.70/ in the parallel market.

In Nigeria, the official rate is 200 naira per dollar, compared with a parallel rate of 300/.

The artificial pegging of the two currencies has seen both strengthen markedly against the rand in recent months, despite a collapse in the crude oil price.

Speculation is mounting that both the naira and kwanza will be devalued.

Logan contended that a marked overstatement of the Nigerian and Angolan cash holdings - which stood at about R700m at the end of the financial year to end-September - was a major factor behind the collapse in Nampak's share price.

Shares in Nampak - widely regarded as a strong play on the African growth story - have lost more than 55% since peaking at R43.99 in February last year.

Logan argued it was reckless for the packaging company to allocate further capital to its sizeable Nigerian and Angolan operations when exchange rates were artificial and inflated.

He believed it was not prudent for Nampak to make further investments in those countries until the currencies were floated to levels that better reflected a proper balance in supply and demand.

Mboweni responded that as a former central banker, he understood Logan's point. But he stressed Nampak was committed to the African growth story. "There are still huge opportunities. Africa's time still has to come."

Mboweni said the company would strive for the best technical solution to the currency challenges.

"For the purpose of this conversation we are committed to do all the technical work necessary to protect shareholders," Mboweni said.

Logan suggested Nampak had underplayed the currency risk in African markets in its annual report.

Nampak CEO André de Ruyter said that while there was no denying a parallel market in the naira and kwanza existed, it was not possible to value the cash balances in the Nigerian and Angolan operations any other way.

He stressed that as a compliant company, Nampak would use the official exchange rate, and could not apply speculative informal rates.

"We closed the cash balances at yearend at the spot rates. We cannot take any other matters into account at financial year-end," he said.

De Ruyter also drew the attention of shareholders to the company's latest annual report, in which Nampak highlighted as operational risks the volatility in the exchange rates of currencies in the rest of Africa and the lack of liquidity in foreign exchange markets.

The annual report noted that swings in the translated rand value of earnings in the rest of Africa had affected the company's financial performance.

"A lack of market liquidity in oilbased economies, specifically Nigeria and Angola, resulting from the fall in the oil price, holds up the repatriation of profits," De Ruyter said.

Nampak's annual report showed it had committed 31% of its total capital expenditure in the past financial year to its operations in the rest of Africa.

Most notable was an investment of R425m in Angola.

In the past financial year, the rest of Africa contributed 27% to Nampak's revenue and 48.5% of trading profit.

The company has indicated that further growth projects in Africa are under review - but stressed that they would be "stringently evaluated" before capital was allocated.