Since the lending rate of banks keeps increasing due largely to the policy of the Central Bank of Nigeria to curb inflation through increasing its Monetary Policy Rate (tightening), the alternative for Nigerian corporates is to seek cheaper sources of funding to continue in business and to make a profit. Checks by BAMIDELE FAMOOFO show that the debt and capital markets are providing the needed succour.
One of the major concerns of financial experts when Olayemi Cardoso, Governor of Central Bank of Nigeria and his Monetary Policy Committee decided to drive the base interest rate otherwise known as the Monetary Policy Rate up in a desperate bid to curb inflation was that cost of borrowing from banks will become too high for businesses to afford.
The implication of that will be that the cost of production will rise higher and the prices of goods will become much more unaffordable for the consumers.
MPR has been raised by 6 percent by the MPC in two months (February and March) to 24.7 percent, a decision considered by most financial pundits as highly hawkish and very daring.
The Chief Executive Officer, Financial Derivatives Limited, Bismarck Rewane, noted that the immediate impact of the policy on the lending rate of banks will be that it will increase to between 28 percent and 32 percent per annum while savings will stand between 8 and 11 percent per annum.
Borrowing at an average interest rate of 30 percent obviously would take its toll on the cost of production as other factors like the exchange rate, energy cost; and logistics are there for the Corporates especially the manufacturers to contend with.
Meanwhile, Corporates are not resting on their oars as they are seeking cheaper alternative sources to fund their business operations and remain profitable.
Recently, Dangote Sugar Refinery Plc, Dangote Cement Plc, Nigerian Breweries Plc and FlourMills of Nigeria Plc, all giant Corporates in Africa’s largest economy are exploring the debt market to raise capital to run their operations.
Nigerian Breweries Plc
For instance, the board of directors of Nigerian Breweries Plc, one of Nigeria’s largest brewing companies announced that it is to raise an additional N600 billion from the capital market as part of efforts to reduce its debt burden as well as the negative impact of the Naira devaluation and increasing cost of funding.
NB Plc seeks to explore the options of its shareholders to raise fresh capital which exceeds the N500 billion minimum capital base required of big commercial banks with an international outlook to operate in the country come April 2026.
” Dangote Sugar Refinery Plc, Dangote Cement Plc, Nigerian Breweries Plc and FlourMills of Nigeria Plc, all giant Corporates in Africa’s largest economy are exploring the debt market to raise capital to run their operations”
According to Uaboi Agbebaku, Company Secretary Nigerian Breweries Plc, the Board is proposing to raise fresh funds via Right Issue offering on the Nigeria Exchange Limited.
According to him, the decision was reached at a board meeting held on Tuesday, April 2, 2024, however, the board will still have to wait for the company’s shareholders approval as well as regulatory authorities to proceed.
Part of the notification reads, “Nigerian Breweries Plc (“NB” or “the Company”) hereby informs the Nigerian Exchange Limited and the investing public that at a specially convened meeting of the Board of Directors of the Company held on the 2nd of April 2024, the Board resolved to recommend to shareholders at the next Annual General Meeting (“AGM”), the raising of up to N600 billion capital by way of Rights Issue, subject to regulatory approvals.”
Explaining the reason for the decision to explore the capital market option rather than approaching banks for a loan, NB said, “Due to the negative impact of the devaluation of the naira and the high cost of funds on the Company’s capital structure, especially on the Company’s debts, the proceeds from the Rights Issue will help to reduce the huge debt burden arising thereby leading to a healthier balance sheet. Coupled with ongoing cost savings and other operational efficiency efforts, the Board is optimistic about steering the Company back to the path of sustainable profitability in the near future.
“The Board also resolved to recommend to shareholders at the AGM scheduled for the 26th of April 2024, the increase in the Company’s share capital to take care of the new shares to be allotted under the Rights Issue.”
Meanwhile, the Company has announced that its 78th Annual General Meeting will be held in Lagos on Friday, 26th April 2024.
The decision to raise the N600 billion is listed among other resolutions shareholders are expected to vote for at the meeting.
Part of the resolutions to be proposed for shareholders to pass at the meeting includes, “That the general mandate given to the Company to enter into recurrent transactions with related parties for the Company’s day-to-day operations, including amongst others the procurement of goods and services, on normal commercial terms be and is hereby renewed.
“That subject to obtaining the approval of the relevant regulatory authorities, the Directors of the Company be and are hereby authorised to raise capital of up to N600 billion (six hundred billion naira) by way of Rights Issue, through the issuance of ordinary shares, on such other terms and conditions and at such time, as the Directors may deem fit or determine.
“That shares not taken up by existing shareholders within the period stipulated under the Rights Issue may be offered to shareholders of the Company that have indicated interest in purchasing additional shares not taken up by the shareholders entitled to do so in the Rights Issue, on such terms and conditions as may be determined by the Directors, subject to complying with relevant regulatory requirements.
“That the share capital of the Company is increased by the exact number of ordinary shares which would be required upon determination of the terms of the Rights Issue and the Directors are hereby authorised to pass resolutions for such increase, as well as to allot the new ordinary shares upon completion of the Rights Issue.
“That the Directors of the Company be and are hereby authorised to apply any outstanding shareholder loan, trade payable, or any other loan facility due to any person from the Company as may be agreed by the person and the Company, towards payment for any shares subscribed for by such person under the Rights Issue.
“That after the increase of the Company’s share capital and allotment of the new ordinary shares in accordance with the resolutions above, the Memorandum of Association of the Company be amended as necessary to reflect the Company’s newly issued share capital.”
Again, Nigerian Breweries announces third price hikes in three months
In what seems to have become a monthly ritual, the Nigerian Breweries Plc has once again announced a hike in the prices of its products that would take effect from April 9, 2024, after it had made similar announcements in February and March 2024.
A price review notification the Nigerian Breweries issued on April 5 to all direct customers in its west zone notified them “of the price review for some of our SKU’s, which takes effect from Tuesday, April 9, 2024.”
The notification, which was signed by its Zonal Business Manager-West, ‘Lekan Awosanya, also said that “all open orders in our system at 00.00 hours on April 9, 2024, will be invoiced at the new prices.
“For further clarification, please do not hesitate to contact your regional business manager.”
The latest price review would affect 45 products that are manufactured by the company and also cut across its alcoholic and nonalcoholic products such as beer, malted, and other drinks.
The affected brands included Export, Goldberg, Gulder, Heineken, Life, More Lager, Star, Star Lite, Star Radler, and Tiger beers. Others are Amstel Malta, Maltina, Hi Malt Fayrouz products.
The Nigerian Breweries had notified its distributor that it would increase the prices of its products on March 15, 2024, after a similar exercise on February 19, 2024.
The company had attributed the review of its prices in March to the continued rising input cost and the need to mitigate the impact.
It stated, “As earlier informed, we will review the prices of some of our SKUs effective Friday, March 15, 2024. This review has become necessary because of the continued rising input cost and the need to mitigate the impact.
“All open orders in our system at 00.00hrs on Friday, March 15, 2024, will be invoiced at the new prices.”
The notification added that “while thanking you for your commitment to our great partnership, be rest assured that we will continue to support your sales/distribution efforts as always.
“For further clarification, please do not hesitate to contact your regional business manager. Happy selling.”
The brewery issued a similar “Price Review Notification” to all its direct customers in the west zone on February 12, 2024, for another price adjustment that commenced on February 19, 2024.
The notification said, “Please accept our best compliments! This is to inform you that we are constrained to review the prices of some of our SKUs with effect from Monday, February 19, 2024. This review has become necessary because of continued rising input costs and the need to mitigate the impact.
“In appreciation of our great partnership and your commitment, we will deliver at current prices all open orders that are fully funded and created in our system before 00.00hrs on Monday 19th February 2024.”
It, however, explained that orders exceeding the communicated quantity window will be subject to the revised pricing.
“The exact quantity of orders that will be allowed will be communicated to you by your regional business manager (RBM). Any order over this quantity will be re-invoiced at the new price on February 19, 2024,” the statement added.
Earlier in August 2023, the Nigerian Breweries also carried out a price hike on its selected products, which took effect from August 10, 2023.
It would be recalled that the company booked a net loss of N106 billion in its audited result for 2023 due to the steep depreciation of the Naira.
It, however, recorded an operating profit of N44.5 billion.
Highlights of its 2023 report included an increase in revenue by 9.0 per cent while its cost of sales increased by 15 per cent.
Dangote Sugar Refinery
Dangote Sugar Refinery Plc, the largest sugar refinery in Sub-Saharan Africa offered Commercial Papers worth N50 billion to investors in the money market last Tuesday.
DSR by the issuance hoped to raise N50 billion in fresh capital under its N150 billion Commercial Paper Issuance Programme.
The purpose of the capital raise, according to DSR, is to support its short–term working capital and funding requirements.
“We are pleased to inform you of the launch of Dangote Sugar Refinery PLC (“DSR” or “the Company” or “the Issuer”) debut Series 1 Commercial Paper offer of up to N50 billion The Offer is NOW OPEN and scheduled to close Tuesday, 27 February 2024,’’ DSR disclosed in a statement.
DSR is Sub-Saharan Africa’s largest sugar refinery, with a combined installed refining capacity of 1.44 million metric tonnes per annum and a market share of about 55 percent in the retail space.
The company is a subsidiary of the Dangote Group and is engaged in the refining, distributing, and marketing of granulated sugar to wholesalers and top players in the skin care, food and beverage, and pharmaceutical industries.
Commenting on the deal, Futureview Financial Services Limited said, “DSR is on track to becoming a leading global integrated sugar producer with its backward integration plan – target 0.7MMT refined sugar production, expansion of out-growers scheme and strategically seeking to expand existing warehouses and fleet of over 800 haulage trucks to cover target markets in Nigeria and West Africa. The Company has 47,364 hectares of sugar plantation and aims to produce 1.5 million metric tonnes of refined sugar annually from its sugarcane in the medium term.’’
Historically, DSR has reported a solid financial performance with both top-line and bottom growth despite challenging macro headwinds.
Its strong revenue growth is evidenced by a CAGR of 28.0 percent between 2018 and 2022 on account of improving operational efficiency, improving customer service delivery, and maintaining the high quality of its products. Additionally, the Company’s growth in profitability is shown in its CAGR of 23.4 percent and 26.0 percent in gross profit and operating profit respectively, between 2018 and 2022. As of 9M ’23, DSR reported a y-o-y 7.42 percent growth in revenue.
“The decision to raise the N600 billion is listed among other resolutions shareholders are expected to vote for at the meeting”
Flour Mills of Nigeria Plc
Flour Mills of Nigeria Plc, one of Nigeria’s biggest and oldest conglomerates has a plan to raise N200 billion to support its business plans. Like DSR Plc, it will issue Commercial Papers to raise fresh capital starting from April 10, 2024, till April 7, 2024.
FMN Plc explained that the capital will support its short-term requirements and that it will be paid back to investors from the general cash flows of the company.
The Series 7 CP that will be issued in April is targeted to raise about N74 billion while the balance will be raised in subsequent Series under the programme.
Dangote Industries Funding Limited
Dangote Industries Funding Limited has the plan to raise N300 billion under its debt issuance programme and has raised and listed N187.58 billion Series 1 (Tranche A & B) and N112.42 billion Series 2 Senior Unsecured debt on the platform of the FMDQ.
The Series 1 and 2 bonds were listed on FMDQ Exchange in November 2022 and March 2023, respectively.
Dangote Industries Funding PLC is a special-purpose vehicle set up by Dangote Industries Limited to raise finance through the listing of debt securities.
Dangote Industries is a diversified and fully integrated conglomerate with an annual group turnover of over $4 billion with vibrant operations in Nigeria and Africa across a wide range of sectors including cement, sugar, salt, condiments, packaging, energy, port operations, fertiliser, and petrochemicals.
Ms. Tumi Sekoni, Managing Director, FMDQ Exchange, said the debt market via the Exchange’s platform is a testament to the highly efficient time-to-market and unrivalled listing and quotation service offered by FMDQ Exchange.
She reiterated the Exchange’s commitment to continue to innovate and provide efficient services, to support issuers and investors, towards achieving an operationally excellent and globally competitive debt market.
According to DIFL, the Series 1 and 2 bond issuances represent the largest aggregate local currency corporate bond issuances within a calendar year and under a single programme in the history of the Nigerian debt markets.
“Proceeds of the series 1 and 2 bonds were dedicated to part-financing the Dangote Petroleum Refinery Project which is the initiative by Dangote Group to establish an Integrated Petrochemical Complex, and the largest Single Train Petroleum Refinery in the World. Ultimately, the completion of the refinery would facilitate our ability as a country to meet our local demand for refined crude products, gearing us towards self-sufficiency,” DIFL disclosed.
DIFL stated its resolve to explore the debt market to further boost its investment and drive improved returns to its stakeholders.
“At Dangote, we remain resolute in our commitment to the Nigerian and African story and continue to demonstrate this through investments in projects and initiatives that directly improve the quality of lives of our people. Indeed, these are very exciting times for us as a business, and we would continue to welcome opportunities to work with stakeholders in the domestic capital markets, towards accelerating economic activities across Africa, whilst maximising stakeholder returns.”
