Cadbury looks to convert $7.7m debt into equity to shore up balance sheet

Onome Amuge

Cadbury Nigeria Plc, a food, sweets and drink company and subsidiary of Mondelez International has announced a plan to convert its outstanding shareholder loan of $7.7 million into equity. The aim of this conversion is to improve the company’s financial health by reducing its balance sheet leverage, lowering its exposure to foreign exchange risk, and improving profitability. 

According to the details provided in a recent statement, the conversion will involve the issuance of 402.082 million new ordinary shares to Cadbury Schweppes Overseas, the parent company. The conversion will result in an increase of N201.04 million in the company’s share capital, and the new shares will have the same rights and privileges as the existing shares. 

Cadbury’s decision to convert the shareholder loan into equity was made after it obtained intercompany loans totalling $23 million from Cadbury Schweppes. These loans were used to settle outstanding third-party loans that had been used to fund the company’s raw material imports and other input costs. 

Cadbury Nigeria Plc, in a regulatory filing,explained that it has been facing challenges in servicing its foreign currency-denominated loans due to the Central Bank of Nigeria’s foreign exchange policies and the country’s widespread foreign exchange shortage. 

Cadbury said, “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.”

This,according to the manufacturers of the local flagship brand Cadbury Bournvita, resulted in an unrealised exchange loss of N20.6bn and a loss after tax of N10.2bn for the period ended, 30 September 2023. 

Despite the challenges posed by the CBN’s foreign exchange policies and the country’s forex scarcity, Cadbury Nigeria Plc has been able to repay a significant portion of the loan. Specifically, the company has repaid $18.6 million of the principal and accrued interest to Cadbury Schweppes Overseas, with an outstanding balance of $7.7 million as of December 31, 2023. However, the settlement of a portion of the loan resulted in a foreign exchange loss of approximately N13.5 billion, which is likely due to fluctuations in the exchange rate during the repayment process.

In order to address the challenges posed by the CBN’s policies and the country’s forex scarcity, the board of directors of Cadbury Nigeria Plc has proposed converting the remaining balance of the shareholder loan into equity. This will be done by issuing 402 million new ordinary shares to Cadbury Schweppes Overseas, the company’s parent company, at the share price of the company as of December 27, 2023. 

According to the company, the conversion of the N7 billion shareholder loan into equity will have several benefits for the company. These benefits include:

– Deleveraging the balance sheet and reducing pressure on the company’s cash flows.

– Reducing the company’s exposure to foreign exchange risk and its impact on earnings.

– Reducing the company’s finance costs.

– Improving the company’s profitability.

Cadbury Nigeria further stated that these benefits could potentially have a positive ripple effect throughout the organisation, leading to increased profitability, improved shareholder value, and an enhanced ability to deliver products and services to its customers.