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The macroeconomic pain is tormenting some firms who are flirting with bankruptcy and are technically insolvent unless owners act swiftly by injecting fresh capital needed to salvage these entities and avert massive layoffs in a country with high unemployment.
Of course, the announcement of removal of subsidy on fuel and unification of the exchange rate (a de facto devaluation) was not expected by companies who had not hedged against foreign currency risk; consequently, some of them booked huge foreign exchange revaluation losses that led to negative retained earnings.
However, some had been beleaguered even before the new bold reforms by President Bola Tinubu, as they continue to sail in turbulence.
Nestle Nigeria, Cadbury Nigeria, MTN Nigeria, PZ Cussons, Medview, R.T. Brisco, Tourist Company of Nigeria FTN Cocoa, incurred a combined N181.52 billion in negative shareholders’ funds as total liabilities exceeded total assets.
A breakdown of the figures shows Nestle incurred negative retained earnings of N78.35 billion; Cadbury, N15.08 billion; PZ Cussons, N23.16 billion; MTN Nigeria, N40.84 billion; Tourist Corporation of Nigeria, N7.82 billion; FTN Cocoa, N4.95 billion; Medview, N2.67 billion, and R.T Brisco, N8.87 billion.
Nigeria is a difficult country where rising inflation has undermined consumer spending and ballooned cost of production. And that’s as decrepit infrastructure and unstable power supply from the grid forces firms to spend copious amounts of money on generating plants for head office and branch office across the country.
There is also the issue of spiraling borrowing costs. Debt levels have quickly risen since the central bank intensified its hiking policies to curb stubborn inflation.
A few years ago, a court withheld R.T. Briscoe’s assets over a N2.6 billion debt owed to various commercial banks across the country.
FTN Cocoa, one of Nigeria’s oldest cocoa processors, is reeling from a liquidity crisis as it is unable to generate reasonable revenue and turn a profit. The cocoa processor has N17.45 billion debt in its balance sheet.
Analysts say a challenging macroeconomic environment and foreign currency (FX) crisis that is impacting product availability could force more firms to exist (Japa) the country.
GlaxoSmithKline Consumer Nigeria Plc, a major pharmaceutical giant, announced its exit from the Nigerian market.
Sanofi-Aventis Nigeria Ltd, a major supplier of polio vaccines, also announced its exit from the Nigerian market and transition to a third-party distribution model.
In February 2024, Nigeria’s headline inflation rate rose to 31.70 percent, up from 29.90 percent in January 2024, marking an increase of 1.80 percent.
The Nigeria 10 year government bond has a 19.760 percent yield. 10 years vs 2 years bond spread is 9.8 bps. Yield Curve is flat in Long-Term vs Short-Term Maturities.
“A number of companies made FX losses which resulted into the companies making losses after tax in 2023 financial year, thus, the retained earnings component of the owners’ equity/capital account of such companies are bound to be negative except if such companies have over the years accumulated strong retained earnings, through adequate retention of previous years’ profit,” said an analyst who doesn’t want his name mentioned.
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