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Kuwait’s Agility has entered into a derivative transaction with Morgan Stanley, Citibank, National Association, and Goldman Sachs Bank Europe, to hedge its investment in Danish global transport and logistics firm DSV, the company said in a statement. Agility will be able to begin drawing down up to EUR 1 bn within a few weeks, according to the statement.
The details: As the equity collar agreement is funded, this will provide the company with EUR 1 bn of relatively “cheaper liquidity,” which in turn will strengthen Agility’s balance sheet, the statement said. The collar agreement will be accounted as a fair value hedge, and be reflected in Agility’s financial statements at fair value through comprehensive income.
Background: Agility is DSV’s second largest shareholder, with an 8.8% stake in the company. The logistics giant purchased the stake when it sold its subsidiary, Global Integrated Logistics (GIL), to DSV in an all-share agreement in 2021.
SOUND SMART- A collar agreement is a form of derivative where the investor sellsa call option on a long stock position and buys a protective put option at the same time. It protects against downside risk in share price by creating a range of values (the “collar”) within which the asset can trade during a specific time period.
The rationale: “Given continued market uncertainty and the significance of the DSV stake on Agility’s overall value, Agility has undertaken this hedging transaction to protect the value of the investment and the shareholders’ value,” according to the statement. The derivative does not “imply that the company is selling its DSV shares,” it said, adding that it will enable Agility to “benefit, to some extent, from the increase in the rise in DSV share price, while at the same time limiting the impact of a possible decline in DSV stock price in the future within the agreed limits.”
ICYMI- Agility’snet income fell 93% y-o-y to KWD 68 mn in FY 2022, after selling GIL. The Kuwaiti warehousing and industrial developer’s revenues rose 77.6% during the year to reach KWD 863.4 mn.
