Nigerian firms cut back on dollar debt exposure

…as more firms move into export to beat FX crunch

Nigerian firms are losing sleep over dollar-denominated debt and will now begin to cut back on their exposure over exchange rate uncertainties.
When some of the firms took up dollar loans, the naira exchanged for N199 to the US dollar, compared to the current official value of N307.5 to the dollar (as quoted on the CBN website March 21), after monetary authorities threw in the towel on a 16-month old naira peg.
This has meant that loans taken barely a year ago, have almost doubled in naira terms and could get worse in the event of another devaluation.
The finance costs of Nigerian firms have soared as a result, and Guinness, Flour Mills and Etisalat are among those pounding the pavements to deleverage their balance sheets.

“Companies that are highly exposed to dollar debt are beginning to restructure them, while others are floating Rights Issues,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham.
“This way, they can preserve their cash flows and reduce burgeoning finance costs,” Ibrahim added, in response to questions.
Debt restructuring is a process that allows a company renegotiate its delinquent debts in order to improve liquidity and sustain operations.

On the other hand, companies issue rights to raise money from existing shareholders when there are no viable financing alternatives.

Guinness Nigeria has submitted its $127 million (N40 billion) rights issue application to the Nigerian Stock Exchange (NSE) for approval and listing.

Also, Flour Mills recently raised N20 billion under its N100 billion Commercial Paper (CP) to refinance existing commercial bank loan obligations for the second time in less than two years.
“We highlight that the company’s earnings have been pressured by elevated finance costs, amidst a relatively high debt profile,” analysts at investment bank, Cardinal Stone Partners, said in response to questions.
“The inclination towards CP’s is actually in line with trends observed in the sector, given the relatively high yield on government securities which have pushed banks’ lending cost higher,” they said by email.
Abu-Dhabi owned Telco, Etisalat, also attempted to restructure its dollar debt after a payment default this month.
However, many firms have resorted to export, to beat the dollar crunch. A number of companies have registered products for export at the ECOWAS Trade Liberalisation Scheme (ETLS), which qualifies products for export within the West African market.
The flour miller’s, Rom Oil, also registered its spread and margarine brands for export, while another subsidiary Northern Flour Mills, enrolled Massa Flour and Massavita for export.
Guinness Nigeria Plc has enrolled its Orijin drink for export into the regional market, just as Mamuda and Nasco registered new sacks and biscuit brands respectively, for export.
Royal Mills and Foods Limited has expanded outside the Nigerian shores, with its noodles and spaghetti, while Mapleleaf Press is now in the ECOWAS market with some of its exercise and textbooks.
Others include Emos Best Industries (cosmetics), Dangote Agro Sacks (sacks), Aristocrat Industries (shrink films and stretch films), Grey De Koroun Nigeria Limited (Balila body cream, Balila body lotion, Balila petroleum jelly and Tony Montana powder).

“Nigeria mostly exports agricultural commodities such as cocoa, charcoal, sesame seed and cotton, and these products presently dominate Nigeria’s non-oil exports that most of our principals take out of the country to earn foreign exchange,” said Tony Anakebe, managing director of Gold-Link Investment Limited.
Anakebe observed that the growing number of export commodities going out of the country from the nation’s seaports also shows that Nigerian local manufacturing companies are diversifying and growing their capacity to earn foreign exchange.
Anakebe noted that one of the problems limiting the growth of export business in Nigeria is the inability of Nigerian exporters to properly package their commodities to meet international requirements.
Obiora Madu, chairman, Export Group, of the Lagos Chamber of Commerce and Industry (LCCI) said a  lot of Nigerians are showing increased interest in export trade and many commodities are going out of the shores of this country but the money is not being repatriated because foreign nationals are presently using export to move money out of the country.
Madu pointed that the operating environment for exporters of farm produce has become very hostile, disclosing that instead of foreigners depending on local operators to get goods, they go to the hinterland to buy the produce themselves, leading to hikes in the local prices of some commodities.
Lucky Amiwero, a maritime analyst, observed that it has become imperative for Nigeria at this time of economic recession, to diversify its economy from oil to non-oil, to drive export, adding that the Federal Government needs to focus on the development of non-oil export process to revamp the nation’s ailing economy.

 

LOLADE AKINMURELE & AMAKA-ANAGOR-EWUZIE