Agility to draw down some EUR 1.3 bn from hedging agreement:Kuwait’s Agility has entered into a derivative transaction with Morgan Stanley, Citibank, National Association, and HSBC, to hedge its investment in Danish global freight forwarder DSV for the second time this year, the company said in a statement. Agility will be able to begin drawing down up to EUR 1.3 bn within a few weeks, according to the statement. Enterprise Logistics was unable to receive a comment from company representatives ahead of dispatch time.

The details: The company is set to receive EUR 1.3 bn of relatively “cheaper liquidity” as the agreement is funded for 8 mn of Agility’s shares in DSV, which amounts to a 4% stake. This in turn is expected to 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. Agility moved to hedge its investment in DSV in April via another funded equity collar agreement that saw the company rake in EUR 1 bn of relatively cheap liquidity.

What’s a collar agreement, you ask? It’s a form of derivative where the investor sells a 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, out of prudence, to protect the value of the investment and shareholders’ value,” the company said in 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 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.”

The company had a good 1Q 2023: Agility saw its bottom line rise 20% y-o-y to KD 15.3 mn in 1Q 2023, according to its most recent earnings. The Kuwaiti warehousing and industrial developer’s revenues soared 142.7% y-o-y to KD 320.5 mn during the quarter.

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