PZ Cussons Nigeria PLC has announced that its Board of Directors, after careful deliberation, has decided to convert $34.26 million of its outstanding loan into equity.
In June 2022, PZ Cussons Holdings Limited (PZCH) loaned $40.26 million to PZ Cussons Nigeria PLC (PZCN) to help cover raw material and operational costs, which were difficult to manage due to currency shortages.
However, between 2023 and 2024, the Naira experienced significant devaluation, which negatively impacted PZCN’s financial results and led to a rise in its foreign currency-denominated loans.
In response to these challenges, the company’s board has decided to strengthen its balance sheet by settling the outstanding shareholder loan obligation and reducing exposure to foreign currency fluctuations.
According to a disclosure signed by Alsec Nominees Limited, the company secretary, and published on the NGX on February 15, 2025, the Board stated:
“After extensive discussions, we have agreed that converting a portion of the outstanding loan, amounting to USD 34.26 million, into equity is the most effective strategy to reduce debt and strengthen the Company’s balance sheet, while significantly minimizing the risk of future foreign exchange losses.”
Post-Conversion, a remaining shareholder loan balance of $6 million will still be payable to PZCH.
Backstory
In June 2022, PZCH provided a loan of USD 40.26 million to its subsidiary, PZCN, to help the company meet its foreign currency obligations for raw materials and operational expenses.
- However, after the foreign exchange market was liberalized in June 2023, the Naira experienced significant devaluation. This led to an unrealized exchange loss of N157.9 billion and a negative shareholders’ equity of N27.5 billion by May 31, 2024.
Despite these financial challenges, PZCN demonstrated revenue growth, achieving increases of 34% and 42% year-on-year for the full and half financial year periods ended 31 May 2024 and 30 November
2024 respectively.
- Nevertheless, the ongoing depreciation of the Naira continued to negatively affect profits, pushing net equity further into the red, reaching N34.5 billion as of the latest financial results on November 30, 2024.
In response to these difficulties, the Board is actively exploring strategic options to improve the financial health of the company.
- A significant proposal on the table is to convert USD 34.26 million of the outstanding loan into equity.
- This move aims to strengthen PZCN’s balance sheet while minimizing the dilution of minority shareholders.
The Plan
The plan is to convert part of the outstanding shareholder loan of $34.26 million (N51,795,312,646.72) into equity at a price of N23.60 per share, effective February 12, 2025.
- This will create 2,194,716,637 new ordinary shares at a value of 50 kobo each for PZCH, increasing the company’s share capital by N1,097,358,318.50.
- These new shares will have the same rights as existing ones.
Shareholder approval is required, along with clearance from the Securities and Exchange Commission (SEC) for the conversion and registration of new shares on the Nigerian Exchange Limited.
The Board has approved these conversion terms after discussions with PZCH and recommends them for approval at an Extraordinary General Meeting on March 13, 2025, at Transcorp Hilton.
- After the conversion, PZCH’s ownership will grow from 73.27% to 82.79%.
- Other shareholders will see their stakes reduced: CardinalStone will drop from 4.91% to 3.16%, AMCON & PFA will fall from 1.56% to 1.01%, and other shareholders will decrease from 20.25% to 13.04%.
What to know
- Shareholder loan terms will remain unchanged after conversion, as they are already favorable compared to current lending rates in Nigeria.
- The Board approved the conversion terms after discussions with PZCH and will recommend them for shareholder approval at an Extraordinary General Meeting on March 13, 2025.
- This conversion aims to strengthen the balance sheet, reduce foreign exchange risk, improve financial ratios, restore a positive net asset position, and enhance investor confidence and market value.
