Cadbury board moves to sell 402m shares over inability to pay $7.7m debt

Cadbury Nigeria has offered to swap its $7.7 million (N7.03 billion) debt owed to Cadbury Schweppes Overseas Limited for more equity.

Cadbury Schweppes Overseas Limited, controlled by Mondelēz International Inc, is a major investor in Cadbury Nigeria with 74.97 percent stake.

In a statement on Tuesday, Cadbury Nigeria said it borrowed $23 million from Cadbury Schweppes to settle outstanding third-party loans obtained to fund raw material imports and other input costs.

Cadbury Nigeria said it is facing challenges servicing the foreign currency-denominated loans due to persistent foreign currency scarcity in the country.

“The liberalisation of the foreign exchange market in June 2023 and attendant devaluation of the currency put further pressure on the Company as the Naira value of its foreign currency denominated loans increased significantly,” the company said.

“This resulted in an unrealised exchange loss of ₦20.6 billion and a loss after tax of ₦10.2 billion for the period ended, 30 September 2023.”

Cadbury Nigeria said it has been able to repay $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.

It said the settlement of a portion of the loan, however, crystallised an estimated foreign exchange loss of N13.5 billion.

“In light of the above, the Board of Directors of Cadbury Nigeria has considered various options for settling the outstanding shareholder loan obligation and reducing the Company’s exposure to foreign currency risk,” Cadbury Nigeria said.

“The conversion of the outstanding loan into equity (the “Conversion”) was selected as the optimal option for the Company, as it is expected to deleverage its balance sheet and save the Company further foreign exchange losses.”

The board approved the conversion, however, on February 8, 2024, shareholders will vote on the decision at an extraordinary meeting (EGM) — before seeking approval from the Securities and Exchange Commission (SEC).

CONVERSION OF DEBT TO EQUITY TO AFFECT CADBURY OWNERSHIP STRUCTURE

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

Cadbury Schweppes presently holds 1,408,131,653 shares. The additional equity will increase its total holding to 1,810,214,310 shares, with its stake rising from 74.97 percent to 79.39 percent.

However, it will reduce the combined stake of other shareholders from 25.03 percent to 20.61 percent, while maintaining the same number of shares (470,070,309) pre-conversion and post-conversion.

Cadbury Nigeria further said its “share capital will be increased by ₦201,041,328.50 through the creation of 402,082,657 ordinary shares of 50 kobo each to accommodate the issuance of new shares”.

However, the new shares will rank side by side with all the existing shares in the company’s share capital.

Commenting on the impact of the conversion, the board said it would create value for the shareholders and relevant stakeholders of the company.

Breaking down the impact, The board said it will deleverage the balance sheet and reduce pressure on Cadbury Nigeria’s cash flows, leading to improved liquidity which could be channelled into better uses or returned to shareholders via dividends.

“It will help reduce the Company’s exposure to foreign exchange risk and its impact on earnings,” the board said.

Cadbury Nigeria said it will reduce finance costs and lead to improved profitability, as well as improve its financial ratios, such as debt-to-equity and coverage ratios, potentially enhancing the company’s financial standing and creditworthiness.