PZ Cussons plans $34.3m debt-to-equity swap

PZ Cussons Nigeria is looking to convert a $34.3 million debt to its parent group, PZ Cussons (Holdings) to equity. This will see the parent group increase its stake in PZ to 82.79 percent, from the current 73.27 percent.

PZ Cussons, in its explanatory statement, disclosed that the outstanding loan from its parent group stands at $34.26 million (approximately N51.8 billion). This debt will be converted into equity at a share price of N23.60 per share, representing an 18% discount to the company’s current market price. This conversion is expected to lead to the creation of 2,194,716,637 new ordinary shares of 50 kobo each.

This move will see PZ Cusson’s share capital appreciate to N3.082 billion, from the current N1.985 billion.

An Extraordinary General Meeting (EGM) will be held in Abuja on March 13, 2025, to deliberate on the matter.

The group, PZ Cussons (Holdings) extended a $40.26 million loan to the Nigerian company in June 2022 to help them settle their foreign currency payables. However, the devaluation of the Naira which happened in June 2023 saw PZ Cussons Nigeria incur an unrealized FX exchange loss of N157.9 billion at the end of the financial year ended May 31, 2024.

Although, PZ Cussons is recording revenue growth, the FX losses are eroding its operating profit thus resulting in a negative equity position. According to the company’s disclosure released on the NGX, the conversion is needed to strengthen its balance sheet and materially reduced its FX risk. The conversion is also needed to restore the company to a positive net asset position.

PZ Cussons has been at loggerheads with its shareholders, primarily due to disagreements over its delisting offer price. Since November 2023, PZ has been making efforts to delist from the NGX, as it firstly offered N23 per share to its minority shareholders, an offer that was vehemently refused. The offer price was increased to N23, an offer which the shareholders refused, with SEC also objecting to the plan, further complicating the exit strategy.

Read Also: Delisting: Shareholders’ stance unchanged amid PZ Cussons’ N28bn negative equity – Businessday NG 

According to reports, PZ Cussons has backed down from the delisting offer, as its share price currently trades at N27.85, a price the company is unwilling to pay.

The discounted share price at which the majority shareholders are converting their debt into equity is expected to be a major bone of contention at PZ Cussons’ upcoming Extraordinary General Meeting (EGM). This move raises concerns about the dilutive impact on existing shareholders but also signals a significant disadvantage for recent investors who purchased shares at a higher market price.

One of the primary concerns is the fairness of the transaction. By offering themselves shares at a price 18% lower than the prevailing market rate, the majority shareholders are essentially securing a preferential deal at the expense of minority investors. This could be perceived as an uneven playing field, where controlling shareholders benefit at a discount while others see the value of their holdings diluted. For recent investors, this move represents an immediate setback. Those who bought into PZ Cussons at a higher price will see their ownership percentage reduced without compensation, reinforcing concerns about whether minority shareholder interests are adequately protected.