Following extensive consideration, the company reported that the Board of Directors of PZ Cussons Nigeria PLC has chosen to convert $34.26 million of its outstanding debt into equity.
In June 2022, PZ Cussons Nigeria PLC (PZCN) received a $40.26 million loan from PZ Cussons Holdings Limited (PZCH) to assist with operating and raw material expenses, which were challenging to control because of currency shortages.
However, the Naira saw a substantial devaluation between 2023 and 2024, which had a detrimental effect on PZCN’s financial performance and increased the amount of debts denominated in foreign currencies.Â
The company’s board has chosen to address these issues by resolving the outstanding shareholder loan obligation and lowering exposure to foreign exchange fluctuations to enhance the company’s balance sheet.
The Board said in a declaration posted on the NGX on February 15, 2025, and signed by the company secretary, Alsec Nominees Limited:
“After much deliberation, we have determined that the best way to lower debt and improve the Company’s balance sheet while greatly lowering the risk of future foreign exchange losses is to convert a portion of the outstanding loan, totalling USD 34.26 million, into equity.”
PZCH will still owe $6 million in outstanding shareholder loans after the conversion.
Background
In June 2022, PZCH gave its subsidiary PZCN a USD 40.26 million loan to assist the business in covering its foreign exchange commitments for operating costs and raw materials.
- However, the Naira devalued significantly following the liberalisation of the foreign exchange market in June 2023. By May 31, 2024, this resulted in negative shareholders’ equity of N27.5 billion and an unrealised exchange loss of N157.9 billion.
PZCN showed revenue growth despite these financial difficulties, with rises of 34% and 42% year over year for the full and half fiscal year periods ending May 31, 2024, and November 30, 2024, respectively.
- However, as of the most recent financial data on November 30, 2024, net equity had dropped to N34.5 billion due to the persistent depreciation of the Naira, which further hurt profitability.
The Board is actively looking into strategic solutions to strengthen the company’s financial health in response to these challenges.
- Converting USD 34.26 million of the outstanding loan into stock is a noteworthy proposal.
- This action aims to minimize minority shareholder dilution while strengthening PZCN’s balance sheet.
The Strategy
After February 12, 2025, a portion of the $34.26 million (N51,795,312,646.72) outstanding shareholder loan will be converted into equity at a price of N23.60 per share.
- This would increase the company’s share capital by N1,097,358,318.50 by creating 2,194,716,637 new shares for PZCH at 50 kobo each.
- The rights of these new shares will be identical to those of the current ones.
For new shares to be converted and registered on the Nigerian Exchange Limited, shareholder permission and Securities and Exchange Commission (SEC) clearance are necessary.
Following talks with PZCH, the Board has approved these conversion arrangements and proposes that they be approved at an Extraordinary General Meeting held at the Transcorp Hilton on March 13, 2025.
- PZCH’s ownership will increase from 73.27% to 82.79% following the conversion.
- Other stockholders’ stakes will decrease: AMCON & PFA will drop from 1.56% to 1.01%, CardinalStone will decline from 4.91% to 3.16%, and other shareholders will drop from 20.25% to 13.04%.
What To Note
- The terms of shareholder loans will not alter after conversion because they are already advantageous compared to Nigeria’s present lending rates.
- The Board will recommend the conversion arrangements for shareholder approval at an Extraordinary General Meeting on March 13, 2025, following discussions with PZCH.
- This conversion’s objectives are to restore a positive net asset position, strengthen the balance sheet, lower foreign exchange risk, improve financial ratios, and boost market value and investor trust.
