Nigerian Company Producing Bornvita Makes Decision On $7.7m Debt After Losing N10bn
- Cadbury Nigeria has announced its new position after making a N10 billion loss in its most recent financial report
- The company is looking to swap its $7.7 million (N7.03 billion) debt owed to Cadbury Schweppes Overseas Limited for more equity
- The decision was prompted by the difficulty faced by the company in paying back the foreign currency-denominated loans due to forex scarcity
Legit.ng journalist Zainab Iwayemi has over three years of experience covering the Economy, Technology, and Capital Market.
Cadbury Nigeria PLC, a Nigerian company producing Bornvita, Tom Tom, and other confectionery and beverages, has decided to keep the company operating after reporting a N10 billion loss based on its 9-month financial report for 2023.
Source: UGC
The company decided to convert its outstanding shareholder loan of $7.7 million (N7 billion), which it owed to its parent company, Cadbury Schweppes Overseas Limited, an entity controlled by Mondelēz International Inc., into equity.
This is at an agreed price of N17.50 per share, which is the company's share price as of the close of trading on December 27, 2023.
In this light, Cadbury Nigeria will issue an additional 402,082,657 ordinary shares of 50 kobo each to Cadbury Schweppes Overseas.
It is understood that N201,041,328.50 will increase the company's share capital through the creation of 402,082,657 ordinary shares of 50 kobo each to accommodate the issuance of new shares.
The issues with Cadbury's loan
According to a disclosure on the Nigerian Exchange, the Nigerian company explained that between February 2021 and September 2023, Cadbury Schweppes Overseas advanced $23 million in intercompany loans to Cadbury Nigeria.
This was to help settle outstanding third-party loans that the company had obtained to fund its imports of raw materials and other input costs.
Cadbury Nigeria asserted that it was hard to repay loans denominated in foreign currencies since foreign currency was never plentiful.
It clarified that the company was under additional strain due to the large increase in the naira value of its foreign currency-denominated loans following the liberalization of the foreign exchange market in June 2023 and the ensuing devaluation of the currency.
According to the statement, this caused an unrealized exchange loss of N20.6 billion and a N10.2 billion loss after taxes for the period ending on September 30, 2023.
Efforts to repay the loan
Notwithstanding these difficulties, the company reported that it could reimburse Cadbury Schweppes Overseas for $18.6 million in principal and interest, leaving an outstanding amount of $7.7 million as of December 31, 2023.
However, the loan's partial settlement crystallized an estimated N13.5 billion foreign exchange loss.
Cadbury board takes a decision
In light of this, Cadbury Nigeria's Board of Directors has considered several alternatives for paying off the outstanding shareholder loan obligation and lowering the company's exposure to foreign exchange risk.
The Nigerian-based company claims that turning the existing loan into equity was the best course of action because it would reduce its balance sheet leverage and prevent further foreign exchange losses.
It added that the board of directors has engaged with Cadbury Schweppes Overseas on the terms for the Conversion, which are captured in a Conversion Loan Agreement.
Unilever, GSK, 4 other major foreign companies that exited Nigeria in 2023
Legit.ng reported that a recent wave has swept some multinational companies in Nigeria out of the country due to the toxic environment for business.
This was worsened by the removal of fuel subsidies, which further toughened the ease of doing business in the country.
From fast-moving consumer goods (FMCG) companies to energy and pharmaceutical companies, the inability to repatriate funds in Nigeria and the unpredictable local currency against foreign currencies has triggered multinationals to bid the country goodbye.
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Source: Legit.ng
