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Wednesday, June 29, 2022

Notore’s unsustainable debt burden may sink firm as Finance costs soar

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Notore’s unsustainable debt burden may sink firm as Finance costs soar
Notore Chemical Industries Plc is a Nigerian firm that is engaged in the production and sale of Fertilizer, particularly Urea and Ammonia.

About 82 percent of its products are sold within Nigeria while the rest are exported. Notore is an interesting company due to the fact that it is able to generate FX denominated revenues, amid Nigeria’s call to diversify its economy away from oil.

However its huge debt burden is a major problem for its balance sheet and shareholders (bagholders?).

Notore released its results for the 3 months period to 31st March 2020 yesterday (May 06), showing it had sales (revenues) of N4.93 billion.
Cost of sales (at N4.94 billion) however swallowed all of its revenue leading to a gross loss of N6.68 million.

More devastatingly however Finance costs in the 3 months period printed at N5.04 billion a 45 percent increase from N3.46 billion a year ago.
What this means is that Notores cost of servicing its debts was higher than its total revenues in the 3 months period.

This led to a substantial loss of N4.37 billion in the period (Jan – March 2020). Clearly this is unsustainable.

What should the firm do?
Notore needs to restructure its debts to cut down on finance costs. The firm had total borrowings (current & non-current) of N100 billion at the end of March 2020. This is up some 25 percent in the six months period between September 2019 and March 2020.

About N18.37 billion of borrowings are owed to the Bank of Industry (BOI), while the rest some N79 billion are categorised as other bank borrowings.
The bank borrowings are secured over the assets of the Group and as at the reporting date there are no undrawn borrowing lines.

Notore could probably also do with a reduction in administrative expenses. For instance Directors at the firm still went home with the sum of N301 million over a 6 months period.

Notore is listed on the Nigerian Stock Exchange (NSE), however the shares are largely illiquid suggesting investors are not keen on trading or owning the stock.

Notore Chemical Industries Plc (”the Company”) was incorporated on 30 November 2005.

The company fully rehabilitated a 500,000 metric tonne Urea Plant in Onne, Rivers State, Nigeria and commenced commercial production in the first quarter of 2010. It is a subsidiary of Notore Chemical Industries (Mauritius) Limited.

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