Nigeria forex woes forces Cadbury to swap dollar loans to equity
Cadbury Nigeria Plc plans to convert foreign-currency loans from parent Cadbury Schweppes Overseas Ltd. into equity to cut higher financing costs caused by the devaluation of the naira.
The beverage and confectionery company will seek shareholder approval on Feb. 8 to convert an outstanding $7.7 million, according to a filing to the Nigerian Stock Exchange. The debt-to-equity conversion “will help reduce the company’s exposure to foreign-exchange risk and its impact on earnings,” Cadbury said. “It will reduce finance costs and lead to improved profitability.”
The company borrowed $23 million from the unit of Mondelez International Inc over the past three years and has struggled to make interest payments due to an acute dollar shortage in Nigeria. Its interest obligations blew up after a naira devaluation last year, resulting in an unrealized exchange loss of 20.6 billion naira and after-tax loss of 10.2 billion as of September, the company said. It cleared some of the loan, but is left with $7.7 million, for which it’s expecting 13.5 billion naira of foreign-exchange losses in 2023, it said.
President Bola Tinubu introduced foreign-currency reforms in June aimed at attracting inflows. Consequently, the local unit depreciated by about 50% against the dollar last year, causing many of Nigeria’s biggest companies to declare losses after revaluing oversea loans and letters of credit using the weaker exchange rate.
Central bank Governor Olayemi Cardoso has taken steps to ease access to dollars, partly by clearing a backlog of unmet demand that discouraged inflows from foreign investors.
