Nigerian Breweries To Tackle FX Debt With N600bn Rights Issue

Nigerian Breweries Launches Rights Issue to Address FX Debt

Nigerian Breweries Plc has announced an N600 billion rights issue, approved by the Nigerian Exchange Limited (NGX), to tackle its mounting foreign exchange (FX) debt.

The brewer, the largest in the country, plans to offer 22,607,491,232 ordinary shares at N26.50 per share, providing existing shareholders with eleven new ordinary shares for every five shares held as of July 12, 2024.

FX Debt: A Growing Concern for Nigerian Breweries

The company’s decision to raise funds through a rights issue is primarily driven by its need to clear a N500 billion FX debt.

This debt has been a significant challenge as Nigeria continues to face dollar scarcity, which has heavily impacted businesses reliant on foreign exchange.

“The tough business landscape, characterised by double-digit inflation rates, naira devaluation, FX challenges, and diminished consumer spending, has taken its toll on many businesses, including ours,” said Hans Essaadi, Managing Director and CEO of Nigerian Breweries Plc.

The Impact of FX Debt on Financial Performance

Nigerian Breweries has struggled with FX debt and other financial challenges, resulting in a significant increase in losses.

The company’s half-year financial results for the period ending June 30, 2024, showed a loss after tax (LAT) of N85.199 billion, a sharp rise from N47.599 billion in the same period the previous year—a 79% increase.

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While revenue grew by 73% to N479.767 billion, up from N277.419 billion in the first half of 2023, the company’s net finance expenses also surged by 60.5% to N154.480 billion.

The escalating cost of FX debt has played a major role in these rising expenses, affecting the company’s profitability.

Rights Issue as a Path to Recovery

Despite the financial challenges, Nigerian Breweries remains optimistic about its future.

The company believes that the N600 billion raised through the rights issue will help stabilise its operations by eliminating FX exposure and reducing the burden of its FX debt.

The Company Secretary and Legal Director, Uaboi Agbebaku, emphasised the importance of this financial move, stating, “The additional capital raised via rights issue will be used for payments of all overdue FX debts and payables, eliminate FX exposure, and strengthen the company’s balance sheet and liquidity position, returning it to the path of net profitability as soon as possible.”

Strategic Plans to Overcome FX Debt Challenges

To further enhance its financial stability, Nigerian Breweries is focusing on strategic pricing, innovation, and market recovery.

These efforts have already contributed to a 73% growth in revenue during the first half of 2024, despite the challenging economic environment.

Essaadi noted, “The company has demonstrated resilience and is on the path to recovery. The growth was driven by strategic pricing, innovation, volume, and market recovery. Gross profit grew by 42%, although lower than the rate of growth in revenue, due to a 93% increase in the cost of goods sold driven by currency devaluation and inflation.”

Heineken’s Support in Tackling FX Debt

Heineken Plc, the majority shareholder of Nigerian Breweries, has committed to raising over 50% of the N600 billion target, underscoring its confidence in the company’s long-term prospects.

This support is crucial in helping Nigerian Breweries navigate its FX debt challenges and return to profitability.

Nigerian Breweries’ N600 billion rights issue marks a significant step towards resolving its FX debt and strengthening its financial position.

As the company continues to navigate the economic headwinds, this capital raise is expected to play a pivotal role in securing a resilient and sustainable future for the brewer.