Cadbury Nigeria Plc has published an explanatory statement to its shareholders on its proposed debt to equity conversion.
In a notice available on the website of the Nigerian Exchange, the Company stated thus:
Cadbury Nigeria Plc is a subsidiary of Cadbury Schweppes Overseas Limited, an entity controlled by Mondelēz International Inc. Cadbury Schweppes Overseas holds a 74.97% stake in Cadbury Nigeria.
Between February 2021 and September 2023, Cadbury Schweppes Overseas, advanced intercompany loans totaling USD23 million to Cadbury Nigeria to help settle outstanding third-party loans which the Company had obtained to fund its raw material imports and other input costs. The Company has however faced challenges with servicing its foreign currency denominated loans due to Nigeria’s persistent foreign currency scarcity. 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 ₦20.6 billion and a loss after tax of ₦10.2 billion for the period ended, 30 September 2023.
Despite these challenges, the Company has been able to repay Cadbury Schweppes Overseas, a total of USD18.6 million of the principal and accrued interest, with an outstanding balance of USD7.7 million as at 31 December 2023. The settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of ₦13.5 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. 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.
The Board of Directors have engaged with Cadbury Schweppes Overseas on the terms for the Conversion which are captured in a Conversion Loan Agreement (“CLA”). These terms have been approved by the Board and is now being recommended for approval by shareholders at an ExtraOrdinary Meeting (“EGM”) to be held at The Grand Ballroom, Civic Centre, Ozumba Mbadiwe, Victoria Island, Lagos, on 08 February 2024 at 10:00am prompt.
Rationale for the Conversion and Expected Benefits
The Board of Directors of Cadbury Nigeria are of the opinion that the Conversion would create value for the shareholders and relevant stakeholders of the Company for the following reasons:
a) Deleveraging the balance sheet will reduce pressure on the Company’s cash flows and lead to improved liquidity which could be channeled into better uses by the Company or returned to shareholders via dividends.
b) 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.
d) 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.
Terms of the Conversion
This will entail the conversion of the outstanding shareholder loan of USD7,718,118.44 (Seven Million, Seven Hundred and Eighteen Thousand, One Hundred and Eighteen US Dollars, Forty-Four Cents) or ₦7,036,446,501.26 1 (Seven Billion, Thirty-Six Million, Four Hundred and Forty-Six Thousand, Five Hundred and One Naira, Twenty-Six Kobo) to equity at an agreed price of ₦17.50 per share (the “Conversion Price”), which is the share price of the Company as at close of trading on 27 December 2023, the date the Board considered and resolved to recommend the Conversion for approval by the shareholders.
In consideration for the conversion, Cadbury Nigeria will issue additional 402,082,657 (Four Hundred and Two Million, Eighty-Two Thousand, Six Hundred and Fifty-Seven) ordinary shares of 50 kobo each to Cadbury Schweppes Overseas. The Company’s share capital will be increased by ₦201,041,328.50 through the creation of 402,082,657 ordinary shares of 50 kobo each to accommodate the issuance of new shares. The new shares will rank pari passu with all the existing shares in the Company’s share capital.
Subject to the approval of shareholders, the Board will seek the approval of the Securities and Exchange Commission (SEC) for the Conversion and registration of the new shares to be issued to Cadbury Schweppes Overseas, in line with Rule 279 (5) of the SEC Rules. Following receipt of SEC approval, the additional shares will be allotted to Cadbury Schweppes Overseas.
Effect of the Conversion
Following the Conversion, the ownership structure of the Company will be as follows:
Cadbury Schweppes Overseas Limited will hold 79.39% of the total equity stake of Cadbury Nigeria Plc while the remaining 20.61% is owned by other shareholders.