AIRPORT CITY, Israel, June 17, 2016 /PRNewswire/ -- Shikun & Binui Ltd. (TASE: SKBN), a global construction and infrastructure company headquartered in Israel, published an immediate report in Hebrew following the Nigerian Government's June 15 announcement regarding the changes in its currency exchange rate policies. The summary of that report follows.
The Central Bank of Nigeria (CBN) announced that it intends to cancel its fixed naira/dollar exchange rate on Monday, June 20, 2016, and to allow the exchange rate to be determined by the market in a "managed float" process that will be carried out by the Nigerian government.
The naira/dollar exchange rate stands at around 197 naira to USD $1.00. While it is not possible to predict with certainty the result of the CBN's actions, it is expected that the elimination of the fixed exchange rate will lead to a float that will devalue the exchange rate. According to industry experts and the opinions of a number of banks unrelated to Shikun & Binui, the Naira exchange rate is expected to stabilize after a period of volatility, to a level of about 250-300 nairas per US dollar.
The Company believes that the devaluation as described above would have a negative impact on its financial results, with the extent of the effect dependent upon the final naira/dollar exchange rate. This impact would appear as a change in the dollar value of the Company's Accounts Payable from the Nigerian Government (from its contracts which are denominated in nairas) and of its naira currency accounts.
Nonetheless, the Company expects that these negative effects will be limited in nature due to the fact that: 1) the majority of its large activities in Nigeria are denominated in nairas; and 2) most of the Company's work agreements in Nigeria contain a price index clause. If the relative costs of these contracts rise due to the devaluation of the naira, according to the signed agreements, the Company will be compensated by its clients with additional payments. Thus, the Company estimates that the overall impact of the devaluation of the naira will be reasonable, and that it will receive at least partial compensation in terms of increased payments from its Nigerian clients.
It is important to bear in mind, as was stated in the Company's Q1 2016 Report to the Board of Directors, that a number of interrelated economic and political events will continue to have a significant effect on the Company's activities in Nigeria throughout 2016. The drop in the price of oil in world markets, together with the recent change of power in Nigeria and the resulting freeze of most financial and governmental activities, together with Nigerian's overall economic status, led the Company to significantly reduce the pace of its Nigerian activities until more clarity could be achieved.
As was reported, the Nigerian government approved its 2016 budget during the first quarter, calling for a significant investment in a variety of infrastructure fields, and allocating specific budgets for projects that are being carried out by the Company. The Company expects that the payment flow for these projects will resume during the next several weeks.
In terms of the financial effect, the Company believes that the impact of the devaluation will be a loss on its Nigerian activities of not more than USD 15-30 million. Furthermore, the Company expects that the overall order backlog that it will be reporting in its next financial reports for the second quarter of 2016, will rise as compared to its level as at the end of the first quarter, reflecting new projects from diverse other regions that have recently entered its backlog, including mega-projects in the US and Colombia which have recently completed the Financial Closing process.
These projections are forward looking statements based upon the Company's past experience, and there can be no certainty that they will eventuate in the way they are described.
About the Shikun & Binui Group
The Shikun & Binui Group is a global construction and infrastructure company that operates in Israel and internationally in seven segments: 1) infrastructure and construction contracting outside of Israel; 2) infrastructure and construction contracting within Israel; 3) real estate development within Israel; 4) real estate development outside of Israel; 5) renewable energy; 6) concessions; and 7) water. The Group's activities focus on large, highly complex projects carried out for entities in private and public sectors with a focus on sustainability.
This summary announcement was prepared solely for the convenience of the reader and does not replace Shikun & Binui Ltd.'s (hereafter – "the Company") full report. The information contained in this announcement is, by its nature, incomplete. All of its contents are provided as a supplement to the Company's report, and are subject to the declarations therein stated. This announcement includes forecasts, assessments, estimates and other information relating to the Company or its subsidiaries, or to other parties or to future events and matters, the extent of whose realization is not certain and is not under the sole control of the Company (forward-looking information, as defined in the Securities Law-1968). The key facts and data serving as the basis for this information are facts and data, among others, related to the current status of the Company and its businesses, facts and data relating to the current status of the operating segments in which the Company engages in its areas of operation, and other macroeconomic facts and data known to the Company on the preparation date of this presentation.
It is understood that forward-looking information does not constitute a fact and is based solely on subjective assessments. Forward-looking information is uncertain and for the most part, is not under the Company's control. The realization or non-realization of the forward-looking information will be influenced, among others, by the risk factors that characterize the Company's operations, as well as developments in the general environment and external factors that impact the Company's operations. The Company's future results and achievements could differ significantly from those presented in this presentation. The Company is not obligated to update or modify the said forecast or assessment, and is not obligated to update this announcement. This announcement does not constitute an offer to purchase the Company's securities or an invitation to receive such offers. An investment in securities in general, and in the Company in particular, carries risk. One must take into account that past data do not necessarily indicate future performance.
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SOURCE Shikun & Binui Ltd.