How CBN’s Forex Policy Forced Cadbury Plc Into Borrowing $23m As Company Seeks Debt Conversion

Cadbury Nigeria Plc is seeking to convert part of the $23m borrowed from Cadbury Schweppes Overseas Limited, its parented company to equity share, THE WHISTLER can report.

Debt-equity conversion occurs when a company exchanges the money an investor put into it or debt to shares at a determined date.

The company said it has applied to the Securities and Exchange Commission to approve the conversion of $7.72m or N7.03bn of the debt owed Cadbury Schweppes to 402,082,657 ordinary shares of 50 kobo at an agreed price of N17.5 per share.

Cadbury Schweppes Overseas Limited is the majority shareholder of the Nigerian subsidiary controlling 74.97 per cent of the issued shares capital, but if the deal is approved, Cadbury Schweppes will control 79.39 per cent of company’s shares.

Cadbury arrived at the decision after it took intercompany loans totalling $23m from Cadbury Schweppes to help settle outstanding third-party loans.

The loans were obtained to fund its raw material imports and other input costs.

The company said in a regulatory filing obtained by THE WHISTLER that it faced challenges with servicing its foreign currency-denominated loans after the Central Bank of Nigeria embarked of its forex policies in June 2023 coupled with the country’s scorching FX scarcity.

Cadbury said, “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.

“This resulted in an unrealised exchange loss of N20.6bn and a loss after tax of N10.2bn for the period ended, 30 September 2023. Despite these challenges, the Company has been able to repay Cadbury Schweppes Overseas, a total of $18.6m of the principal and accrued interest, with an outstanding balance of $7.7m as at 31 December 2023. The settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of N13.5bn.”

The company said after weighing options, the conversion of the outstanding loan into equity was selected by the board.

The company believes that converting the N7bn to equity would deleverage the balance sheet and reduce pressure on the company’s cash flows.

“It will help reduce the Company’s exposure to foreign exchange risk and its impact on earnings. c) It will reduce finance costs and lead to improved profitability.

“It will improve the Company’s financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the Company’s financial standing and creditworthiness,” it added.

To execute the conversion, Cadbury Nigeria said it will issue additional 402,082,657 ordinary shares of 50 kobo each to Cadbury Schweppes Overseas.

The company said it 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.