Naira Depreciation: Cadbury Seeks $7.7m Foreign Debt Conversion To Equity

Cadbury Nigeria has offered to swap its $7.7 million (N7.03 billion) debt owed to Cadbury Schweppes Overseas Limited for more equity.

Cadbury Nigeria, in a statement released on Tuesday, said it borrowed $23 million from Cadbury Schweppes to settle outstanding third-party loans obtained to fund raw material imports and other input costs.
“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,” the firm said.

According to the firm, this resulted in an unrealised exchange loss of N20.6 billion and a loss after tax of N10.2 billion for the period ended September 30, 2023.

Cadbury Nigeria said it has been able to repay $18.6 million of the principal and accrued interest to the investor, leaving an outstanding balance of $7.7 million as of December 31, 2023.
It said the settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of N13.5 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,” Cadbury Nigeria said.
“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,” it said.

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The board approved the conversion, however, on February 8, 2024, shareholders will vote on the decision at an extraordinary meeting (EGM) — before seeking approval from the Securities and Exchange Commission (SEC).
The conversion of the $7.7 million debt to equity, according to the company, will result in the creation of 402,082,657 shares, which will be handed to Cadbury Schweppes at N17.50 per share.
Cadbury Schweppes Overseas Limited, controlled by Mondelēz International Inc, is a major investor in Cadbury Nigeria with a 74.97 per cent stake.

Cadbury Schweppes presently holds 1,408,131,653 shares. The additional equity will increase its total holding to 1,810,214,310 shares, with its stake rising from 74.97 per cent to 79.39 per cent.
However, it will reduce the combined stake of other shareholders from 25.03 per cent to 20.61 per cent, while maintaining the same number of shares (470,070,309) pre-conversion and post-conversion.

Cadbury Nigeria further said its “share capital will be increased by N201,041,328.50 through the creation of 402,082,657 ordinary shares of 50 kobo each to accommodate the issuance of new shares.”
However, the new shares will rank side by side with all the existing shares in the company’s share capital.
The board of directors, while commenting on the impact of the conversion said it would create value for the shareholders and relevant stakeholders of the company.

The board said it will deleverage the balance sheet and reduce pressure on Cadbury Nigeria’s cash flows, leading to improved liquidity which could be channelled into better uses or returned to shareholders via dividends. “It will help reduce the company’s exposure to foreign exchange risk and its impact on earnings.”

Cadbury Nigeria said it will reduce finance costs and lead to improved profitability, as well as improve its financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the company’s financial standing and creditworthiness.