Ten listed firms including Nestle, Notore Chemicals and Dangote Sugar are technically insolvent as foreign exchange revaluation losses wiped out retained earnings leading to negative shareholder equity.
Negative shareholder equity occurs when the company’s liabilities exceed its assets, and in more financial terms, the company’s incurred losses that are greater than the combined value of payments made to shareholders and accumulated earnings from previous periods.
This undermines future dividend payment and there are concerns about heightened sell off of shares.
That’s a double whammy for companies who are reeling from rising input costs, weak consumer demand, and decrepit infrastructure.
Of course, the sharp devaluation of the Naira by the central bank led to a rise in the cost of settling foreign currency obligations. Manufacturers import a large chunk of their raw materials, which exposes them to currency risk.
Dangote Sugar Refinery (DSR) Plc posted negative shareholders’ funds of (N64.72 billion), the first in its existence as a N193.12 billion foreign exchange revaluation loss tipped the largest producer of the sweetener into N144 billion loss after tax. The largest producer of the sweetener imports 93 percent of raw sugar needed to meet production.
FT Cocoa suffered a negative shareholders’ fund of (-N3.51 billion); Nigeria Breweries Plc, (-N21.21 billion); Nestle Nigeria Plc, (N104.85 billion); P Z Cussons Plc, (-N47.16 billion); MTN Nigeria Plc, (N577.74 billion); Notore Chemical (N87.68 billion) Plc; Eterna Oil, (N1.33 billion) Plc, Japaul Paul and Oil Plc (-N397.12 million), RT Briscoe Plc, (N8.73 billion0), and Tourist Company of Nigeria Plc (-N49.91 billion).
The currency devaluation and subsidy that balloon inflation rate has dealt a great blow on a fragile economy, which made some companies exit the country.
The naira has depreciated against the US dollar by 69.47 percent under the current administration led by President Bola Ahmed Tinubu amid the implementation of foreign exchange reforms.
The precarious situation has put the owners of these firms between a rock and a hard place and analysts who spoke to MoneyCentral said the prevailing macro uncertainties means these entities will have to raise capital which will be injected into their businesses to keep them afloat.
Notore Chemicals Plc says it is seeking an equity capital injection of up to N106 billion and MTN Nigeria has renegotiated tower lease contracts to help stem impact of the FX lossess on the balance sheet.
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