Cadbury Nigeria, a leading confectionery company, has announced plans to convert its $7.7 million debt to its parent company into more shares.

The move is expected to reduce the company’s exposure to foreign currency risk and save it from further losses.

According to Cadbury Nigeria, it borrowed $23 million from Cadbury Schweppes Overseas Limited in 2023 to fund its raw material imports and other input costs. Mondelēz International Inc., a global snack giant, controls Cadbury Nigeria.

However, the devaluation of the naira and the scarcity of foreign currency in the country made it difficult for the company to service the loan, resulting in an unrealized exchange loss of N20.6 billion and a loss after tax of N10.2 billion for the period ended September 30, 2023.

The company said it had repaid $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.

The settlement of a portion of the loan, however, crystallized an estimated foreign exchange loss of N13.5 billion.

A Win-Win Situation

The board of directors of Cadbury Nigeria said it considered various options for settling the outstanding shareholder loan obligation and reducing the company’s exposure to foreign currency risk.

The board approved the conversion of the outstanding loan into equity, selecting it as the optimal option for the company.

According to the company, the conversion of the $7.7 million debt to equity will result in the creation of 402,082,657 shares. These shares will be handed to Cadbury Schweppes at N17.50 per share.

This will increase the shareholding of Cadbury Schweppes in Cadbury Nigeria from 74.97 percent to 77.66 percent, according to the company.

The conversion will also deleverage the company’s balance sheet and save it from further foreign exchange losses, the company said.

The decision is subject to the approval of the shareholders at an extraordinary meeting on February 8, 2024, and the approval of the Securities and Exchange Commission.

Cadbury Nigeria, established in 1965 has since become one of the oldest and most successful companies in Nigeria.

The company produces and distributes some of the most popular brands in the country, such as Bournvita, TomTom, and Trebor. Cadbury Nigeria said it remains committed to delivering value to its shareholders, customers, and consumers, despite the challenging operating environment.

The company also said it is optimistic about the prospects of the Nigerian economy and the opportunities for growth in the confectionery market.

Cadbury Nigeria said it will continue to invest in innovation, quality, and sustainability, as well as leverage the global expertise and resources of Mondelēz International.

Source: Vanguard