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By Chinwendu Obienyi
The Nigerian economy is gearing up for significant equity infusions as FMCG (Fast-Moving Consumer Goods) companies and telecommunications firms have indicated plans to raise between N1.6 trillion and N2 trillion to restore their financial health amid substantial foreign exchange (FX) losses.
This, according to Daily Sun analysis, is necessary owing to the losses recorded in the 2023 financial year. Hence, when combined with a planned N4.2 trillion capital raise by commercial banks, the total equity infusion is set to reach around N6 trillion.
It will be recalled that owing to the government’s economic reform measures which include the removal of subsidy, FX unification and rate hikes, the balance sheets of several companies (banks, FMCGs and Telcos) quoted on the floor of the Nigerian Exchange Limited (NGX) were severely impacted.
The reforms led to the depreciation of the naira twice which led to considerable FX losses for these companies especially those with large foreign currency liabilities.
The cumulative effect of these losses was severe enough to wipe out shareholder funds for many companies.
For instance, a review of the shareholders’ funds of firms as of March 2023 just before the reforms showed that it stood at about N1.09 trillion. However, from June 2023 to March 2024, shareholders’ funds have moved to the negative of N523.9 trillion. This has led to these companies announcing plans to revalue their fixed assets and raise capital.
Furthermore, following the Central Bank of Nigeria (CBN)’s directive to banks to step up their capitalisation in order to boost lending in the economy and strengthen their regional and international competitiveness in the medium term, banks have also approached the capital market in a bid to raise capital.
Some of the top tier-1 banks and tier-2 banks have reportedly gotten shareholders’ approval to raise capital while companies like Nigerian Breweries and International Breweries have announced plans to raise significant amounts through rights issues.
According to a filing obtained from the NGX’s website, Nigerian Breweries Plc plans to raise N600 billion and is also planning to N264 billion of its parents’ company debt into equity.
On the other hand, International Breweries is looking at a N588 billion rights issue, Guinness Nigeria’s acquisition by Tolaram is expected to provide a capital infusion of about N103 billion, potentially reducing the need for further market-based capital raises while MTN Nigeria are actively managing their exposure to dollar volatility by reducing outstanding letters of credit.
For Nestle, it announced that it is moving towards re-evaluating some of its assets, a move expected to hit over N200 billion.
Reacting to this development, analysts at Afrinvest noted that these measures are critical to restoring financial stability and investor confidence, which have been shaken by the recent financial turmoil.
“Investors are likely to view this moves as a positive trigger as well as the quoted companies’ commitment to addressing their financial challenges and restoring stability.
While the share prices of these companies have declined, reflecting investor concerns, the planned equity infusions and strategic financial management are expected to stabilize the situation and potentially lead to recovery in the market”, they said.
