Debt Challenge: Cadbury Nigeria to Convert Foreign Parent Loan to Shares
Cadbury Schweppes Overseas Limited, the parent company of Cadbury Nigeria Plc would increase its stake to 79.39% as the local subsidiary seeks to convert debt to equity.
MarketForces Africa gathered that Cadbury Nigeria is seeking to convert of outstanding shareholder loan of USD7,718,118.44 or ₦7,036,446,501.261 to equity at an agreed price of ₦17.50 per share.
This was the share price of the Company as of the close of trading on 27 December 2023, the date the Board considered and resolved to recommend the Conversion for approval by the shareholders.
In consideration of the conversion, Cadbury Nigeria will issue an additional 402,082,657 ordinary shares of 50 kobo each to Cadbury Schweppes Overseas.
The Company’s share capital will be increased by ₦201,041,328.50 through the creation of 402,082,657 ordinary shares of 50 kobo each to accommodate the issuance of new shares.
Details of the proposed transaction showed that before the debt-to-equity conversion, Cadbury Schweppes Overseas Limited owned a 74.97% interest in Cadbury Nigeria, a strong market player in the sugar confectionery, gum and powdered beverages in the country.
In a document, the company explained that between February 2021 and September 2023, Cadbury Schweppes Overseas, advanced intercompany loans totalling USD23 million to Cadbury Nigeria.
The amount was to help settle outstanding third-party loans which the Company had obtained to fund its raw material imports and other input costs. Dangote Reacts to EFCC Visit to Headquarters
The Company has however faced challenges with servicing its foreign currency-denominated loans due to Nigeria’s persistent foreign currency scarcity, according to the statement.
“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”, management said.
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 USD 18.6 million of the principal and accrued interest, with an outstanding balance of USD 7.7 million as of 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 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 company said its Board of Directors have engaged with Cadbury Schweppes Overseas on the terms for the Conversion which are captured in a Conversion Loan Agreement.
These terms have been approved by the Board and is now being recommended for approval by shareholders at an Extraordinary Meeting to be held on 08 February 2024
The Board of Directors of Cadbury Nigeria believe that the Conversion would create value for the shareholders and relevant stakeholders.
They believe the deal to deleverage the balance sheet will reduce pressure on the Company’s cash flows and lead to improved liquidity which could be channelled into better uses by the Company or returned to shareholders via dividends.
It will help reduce the Company’s exposure to foreign exchange risk and its impact on earnings also reduce finance costs and lead to improved profitability.
The new shares will rank pari passu with all the existing shares in the Company’s share capital.
Subject to the approval of shareholders, the Board will seek the approval of the Securities and Exchange Commission for the Conversion and registration of the new shares to be issued to Cadbury Schweppes Overseas, in line with Rule 279 (5) of the SEC Rules. Following receipt of SEC approval, the additional shares will be allotted to Cadbury Schweppes Overseas.