Forex exposure: Cadbury Nigeria to swap $7.7m outstanding debt to equities

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  • Bullish sentiment persists as investors gain N1.57trn

The Board of Directors of Cadbury Nigeria Plc has announced plans to convert an outstanding debt of $7.7 million owed its parent company, Cadbury Schweppes Overseas Limited to equities as part of efforts to reduce its exposure to foreign currency risk.

According to the notice of the EGM signed by the company secretary, Mrs. Fola Akande, published by the Nigerian Exchange Limited, an extraordinary shareholders meeting is scheduled for Thursday, February 8, 2024 in Lagos, to perfect the arrangement.

Explaining the origin of the debt, the company said, “Between February 2021 and September 2023, Cadbury Schweppes Overseas, advanced intercompany loans totaling USD23 million to Cadbury Nigeria to help settle outstanding third-party loans which the Company had obtained to fund its raw material imports and other input costs.”

Blaming the forex situation in the country for inability to settle the debt obligation, the board said, “The Company has however faced challenges with servicing its foreign currency denominated loans due to Nigeria’s persistent foreign currency scarcity. The liberalisation of the foreign exchange market in June 2023 and attendant devaluation of the currency put further pressure on the Company as the Naira value of its foreign currency denominated loans increased significantly.

“This resulted in an unrealised exchange loss of ₦20.6 billion and a loss after tax of ₦10.2 billion for the period ended, 30 September 2023. Despite these challenges, the Company has been able to repay Cadbury Schweppes Overseas, a total of USD18.6 million of the principal and accrued interest, with an outstanding balance of USD7.7 million as at 31 December 2023. The settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of ₦13.5 billion.

“In light of the above, the Board of Directors of Cadbury Nigeria has considered various options for settling the outstanding shareholder loan obligation and reducing the Company’s exposure to foreign currency risk. The conversion of the outstanding loan into equity (the “Conversion”) was selected as the optimal option for the Company, as it is expected to deleverage its balance sheet and save the Company further foreign exchange losses.”

The Board said it has engaged with Cadbury Schweppes Overseas on the terms for the Conversion which are captured in a Conversion Loan Agreement (“CLA”).

These terms have been approved by the Board and are now being recommended for approval by shareholders at an Extraordinary Meeting (“EGM”), the notification stated.

Meanwhile, part of the special resolution shareholders would pass at the EGM says, “That the outstanding intercompany loan of US$7,718,118.44 (Seven Million, Seven Hundred and Eighteen Thousand, One Hundred and Eighteen US Dollars, Forty-Four Cents) (equivalent to ₦7,036,446,501.26 ( Seven Billion, Thirty-Six Million, Four Hundred and Forty-Six Thousand, Five Hundred and One Naira, Twenty-Six Kobo) owed by the Company to Cadbury Schweppes Overseas Limited (“Cadbury Schweppes Overseas”) be converted into equity by the allotment of 402,082,657 ordinary shares of 50 kobo each to Cadbury Schweppes Overseas, each share to rank pari passu in all respects with the existing ordinary shares in the capital of the Company, at the price of ₦17.50 per share, being the share price of the Company as at close of trading on December 27 2023 and on such other terms as may be agreed by the Directors subject to obtaining relevant regulatory approvals;

“That the Board of Directors be and are hereby authorized to take all such lawful steps, to pass all requisite resolutions and do all such other lawful acts and/or things as may be necessary, incidental, supplemental, consequential to giving effect to resolutions above including listing the new shares on the stock exchange; and all prior lawful steps taken by the Directors in the above regard be and are hereby ratified.”

Bullish sentiment persists as equity market gains 3.57%, investors gain N1.57trn

The Nigerian equities market maintained its bullish trend on Tuesday as investor’s patronage persisted with the market benchmark index closing higher by 2,867.31 basis points, a highest single day gain since June 13, 2023.

Consequently, the NGX All-Share Index grew by 3.57 percent to close at 83,191.84 basis points. As a result, the year-to-date (YTD) return rose to 11.26 percent, with the market capitalization increasing by N1.57 trillion to close at N45.52 trillion.

Analysis of market activities shows that strong buy interest exhibited by investors on the shares of DANCEM, MTNN, BUAFOOD which appreciated by 3.72 percent,3.51 percent and 5.59 percent respectively offset losses in TOTAL, CHAMPION and CWG, which declined by 10.00 percent, 5.00 percent and 4.22 percent each.

Specifically, buy pressure was witnessed on stocks such as FBNH, FTN COCOA, MBENEFIT, UNIVINSURE and CADBURY, as their share price prices recorded gains of 10.00 percent each, even as the number of gainers (72) outweighed that of the losers (13).

In the same light, trading activity on the Nigerian Stock Exchange reflected the prevailing positive trend, evidenced by a 6.61 percent increase in total deals (17,144 trades), followed by an 18.46 percent rise in traded volume (1.41 billion units), and a substantial 61.77 percent surge in the total traded value (N24.68 billion).

Sector-wise, positive sentiment was observed with the Banking index leading the gainers with an 8.16 percent increase, driven by positive movements in the prices of FBNH, WEMA, ZENITH, FCMB, GTCO, UBA and ACCESS.

The Insurance and Consumer Goods indexes followed suit with gains of 6.37 percent and 3.98 percent, respectively, attributed to buying interest in CADBURY, UNILEVER, AIICO and GUINEA INSURANCE. The Industrial sector also recorded gains of 2.53 percent. Meanwhile, the Oil/Gas sector was the only laggard as it declined by 2.35 percent.

At the conclusion of the trading session, FIDELITYBK emerged as the most traded security by volume, with 141.75 million units traded in 989 trades, while UBA led in traded value at N3.78 billion.