Forex Volatility Worsens As Fourteen Nigerian Companies Lost N755.8bn To Naira Depreciation

The Central Bank of Nigeria’s January 14, 2023, foreign exchange announcement and earlier shocks in the first quarter have cost 14 Nigerian companies N755.8bn in FX losses, according to an analysis conducted by THE WHISTLER.

Companies with dollar-denominated debts are spending more to settle such transactions, THE WHISTLER found.

Even non-monetary financial assets and liabilities are being remeasured, the half-year financial statements of the 14 companies revealed.

The analysis was conducted on 10 companies listed on the Nigerian Exchange Ltd which include: Airtel Africa Plc, MTN Nigeria Communications Plc, Nestle Nigeria Plc, Dangote Cement Plc, Nigerian Breweries Plc, Dangote Sugar Plc, Ecobank Transnational Incorporated, Seplat Energy Plc, Transnational Corporation Plc (Transcorp), ConOil Plc, MRS Oil Nigeria Plc, Sterling Financial Holdings Plc, Lafarge Africa Plc, and TotalEnergies Marketing Nigeria Plc.

On 14 June, 2023, the CBN began changes to the operations in the Nigerian Foreign Exchange (FX) Market by abolishing all segmentation and collapsing them into the Investors and Exporters (I&E) window.

The apex bank reintroduced the ‘Willing Buyer, Willing Seller’ model at the I&E window. But black-market operators were excluded from the market.

As a result of the apex bank’s decision, the US dollar has appreciated against the naira in the I&E window.

The market expectation of the new foreign currency regime is that policies and alignments would provide improved dollar liquidity.

Over the past years, access to US dollars in the market has been a difficult task.

Under the Godwin Emefiele-led CBN, the naira was fixed at around N460/dollar but with the managed float.

But the books of the 14 companies show that they transact at a rate ranging from N752- N760 per dollar.

The largest listed firms are among the worst hit by foreign exchange losses from the naira depreciation.

Airtel Nigeria is the most impacted having suffered a foreign exchange loss of $290m (N218.4bn).

Its statement said, “According to our sensitivity analysis this devaluation should have resulted in an approximate $290m (N218.37bn) impact on foreign exchange losses.

“Profit after tax was negative ($151m) driven largely by a foreign exchange loss of $471m recorded in finance cost before tax and $317m after tax because of the devaluation of the Nigerian naira in the month of June 2023.”

MTN Nigeria lost N131.4bn compared to the N13.6bn it lost to FX volatility in the half year 2022.

“The business was significantly affected by a major deterioration in foreign exchange (FX) rates. Nevertheless, there is an ongoing effort to redenominate some categories of these foreign denominated expenditure to the local currency,” MTN acknowledged.

Nestle Nigeria suffered an exchange loss of N124.5bn up from just N7.3bn in the 2022 Half year.

“Due to the recent devaluation of naira, which necessitated the revaluation of our foreign currency obligations, the company recorded an exchange loss of N124.5 billion (2022: N7.3) in the statement of profit or loss and comprehensive income for the period ended 30 June 2023,” Nestle said.

Dangote Cement said “net exchange loss on foreign-denominated transactions was N113.63bn, a rise from N40.6bn recorded in the corresponding period of 2022.”

Nigerian Breweries posted a foreign exchange loss of N85.26bn, up from N7.28bn recorded in the first half of last year.

Dangote Sugar Refinery said, monetary assets and liabilities for the Nigeria operations were revalued at this rate resulting in a revaluation loss of N68.7billion for the Company mainly driven by Letters of Credit and foreign vendor balances.”

Eco Transnational said its Nigerian entity suffered a monetary loss of $62.3m (N46.7bn at N750/$) recorded in its income statement.

Seplat lost $33.8 million or N17.2bn compared to the N2.4bn exchange shock posted in the corresponding period in 2022.

“The revaluation of financial assets arising from this exchange rate resulted in a net (non-cash) loss of $33.8 million (N17,209,000,000),” Seplat said.

Transcorp followed as foreign exchange loss on financing activities during the period rose to N4.83bn from N1bn in the first half of 2022.

Sterling Bank lost N3.6bn as against the N804m it lost in 2022, year on year.

ConOil said it lost N2.98bn to the naira depreciation in the second quarter of the year compared to N300.9m lost in the corresponding period of 2022.

THE WHISTLER found that MRS Oil’s net foreign exchange loss was N2.4bn compared to the N27.76m recorded in the first half of 2022.

Lafarge Africa which posted a foreign exchange gain of N1bn in 2022 first half lost N1.4bn as a result of the depreciation of the currency.

Total similarly posted a net foreign exchange loss of N1.5bn as against the N70.96 million foreign exchange gain recorded in the same period of 2022.