FAST Moving Consumer Goods (FMCG) and GSM companies in Nigeria plan to raise between N1.6 trillion and N2 trillion to fine-tune their financial standing, with the economy aiming for a total equity infusion of about N6 trillion ($5 billion), sources have revealed.
Government policy changes, such as fuel subsidy removal and FX unification, severely impacted company balance sheets, leading to significant foreign exchange losses and the need for recapitalization.
Strategic moves by companies, including asset revaluation and capital raises, aim to restore financial stability and investor confidence, despite recent share price declines.
FMCG’s and Telecoms in Nigeria are sharpening their investor relations game ahead of massive capital raise as they strive towards repairing their battered balance sheets.
This is as commercial banks in Nigeria also embark on a capital raise that is estimated at about N4.2 trillion based on the minimum capital requirements set for banks by the central bank.
For FMCGs and Telecoms, sources estimate a capital raise of between N1.6 trillion and N2 trillion. When combined, the economy seems set to finance a staggering N6 trillion or $5 billion in equity for some of Nigeria’s largest companies
The financial year ended 2023 and the first quarter of 2024 will go down in history as one of the most difficult years financially for the management of these companies largely due to financial decisions taken by the government to reverse the fortunes of the economy.
In June 2023, the federal government decided to remove the controversial fuel subsidy and unify the multiple foreign exchange windows inherited from the Buhari administration.
The government’s policy changes in 2023, which include the removal of fuel subsidies, naira devaluation, continuous interest rate hikes, and other macroeconomic challenges, significantly impacted businesses, including FMCGs and telecom companies. The situation was dire in 2023 and has become even more critical in 2024.
The exchange rate window’s unification particularly affected the balance sheets of the companies as the resultant depreciation meant they had to take in billions in provisions for their foreign currency balances, most of which were foreign loans.
A recent market analysis suggested that the companies incurred a staggering N1.7 trillion in foreign exchange losses in 2023 alone due to the depreciation of the naira.
For some of these companies, the losses grew so large it effectively wiped out their entire shareholder funds, stopping them from paying dividends. To reverse these trends, most of these companies will have to embark on a combination of balance sheet restructuring and recapitalization.
A cursory review of the shareholder funds of these companies as of March 2023 just before the June 2023 forex unification and the removal of fuel subsidy reveals they had combined shareholder funds of about N1.09 trillion. However, between then and March 2024 when they published their first quarter interim results, their shareholder funds moved to a negative of N523.9 trillion.
Some of the companies have announced plans to recapitalize while others have also combined this with plans to revalue their fixed assets as a means of achieving their capital restructuring plans.
Nigeria Breweries, Nigeria’s largest brewer announced it had obtained shareholders’ approval to raise around N600 billion in the rights issue. According to Nairametrics estimates, the company needs to raise at least N158 billion to get back to the shareholder funds level of 2023 Q1.
The company also has an external debt position of N469 billion which it will also need to repay to stay financially solvent. Nigeria Breweries also said it plans to convert part of its debt (N264 billion) belonging to its parent company into equity.
International Breweries, another local brewer, also announced plans to embark on a N588 billion rights issue. According to Nairametrics findings, International Breweries need at least N110.5 billion to return back to their 2023 Q1 shareholder funds levels.
