South Africa's company cuts off funding to struggling Nigerian business

November 16, 2015 10:29 AM

Tiger Brands has struggled to make a profit at Dangote Flour Mills (DFM) since paying nearly $200 million for a 65 percent stake in the firm three years ago as part of broader plan to expand elsewhere in Africa to offset slow growth at home.

A worker operates a bag-sealing machine at the Dangote flour mill in Apapa district in Nigeria's commercial capital of Lagos November 13, 2010. REUTERS/Akintunde Akinleye

Tiger Brands has cut off funding to its Nigerian unit as the South African consumer goods maker launched a review of its investment in the loss-making pasta and flour maker, it said on Monday.

Tiger Brands has struggled to make a profit at Dangote Flour Mills (DFM) since paying nearly $200 million for a 65 percent stake in the firm three years ago as part of broader plan to expand elsewhere in Africa to offset slow growth at home.

But DFM is battling tough competition and weakening naira currency, forcing Tiger Brands to twice write down the value of the business by a total of 954 million rand ($66.31 million).

"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.

Shares in the Johannesburg-based company climbed 4 percent to 323.21 rand by 0942 GMT, outpacing a slightly higher JSE Top-40 index.

One analyst said the move would enhance Tiger Brands' earnings.

"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," said Avior Capital Markets' analyst Jiten Bechoo in Cape Town.

Tiger Brands' other businesses in Nigeria, Deli Foods and UAC Foods, will not be affected by the review. Tiger Brands competes with Nestle Nigeria in Africa's biggest economy.

($1 = 14.3860 rand)