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Friday, September 22, 2023

These Nigerian Companies Have the Highest Debt-to-Equity Ratios Right Now

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Nigerian companies have never had so much debt in their books as they do now.

And perhaps more worrisome is that the probability of some of them going bust in the event of an economic downturn is high as the debt to equity (D/E) ratio has skyrocketed.

A company with a (D/E) ratio higher than its industry average, therefore, may have difficulty securing additional funding from either source.

Rising interest rates due to an aggressive hiking of monetary policy rates by the central bank undermines asset prices, and crimps profitability because companies will be paying more to service the debt in their books.

Regrettable, deteriorating consumer spending, currency devaluation combined with the negative consequences of economic reforms by the new administration have tipped some firms into a technical insolvency that requires them to seek additional capital to prevent outright bankruptcy or liquidation.

The corporate debt (a combination of short and long term obligation) of NGX ASI firms that have released half-Year results stood at N6.29 trillion as at June 2023, which is 27.18 percent higher than 2022’s N4.92 trillion.

All in All, we are taking a look at companies which have a very high D/E ratio or finance their operations with money borrowed than the one that they raised themselves from retained earnings or from the capital market through rights issue or public offering.

Cadbury Nigeria Plc

Cadbury is one of the largest consumer goods firms in Nigeria and it has a pedigree as it has been in the country for several decades.

However, it has a negative D/E ratio due to a negative total equity because as it capitulated to foreign exchange losses that led to a huge loss after tax. It has total long term liabilities of N49.15 billion as at June 2023.

Nestle Nigeria Plc

Nestle Nigeria Plc is a Nigeria-based food manufacturing and marketing company. The Company is engaged in the manufacturing, marketing, and distribution of food products, including purified water throughout the country.

The company has a negative D/E ratio of -6.16, due to currency devaluation. However,  the fundamentals of Nestlé’s business remain strong, given its diversified product bases. The largest consumer goods firm by total assets has total debt of N299.70 billion as at June 2023.

Eternal Oil Plc

Etena Oil is the problem child of the downstream oil and gas sector. The company has been reeling with recurring losses and debt load that has prevented it from distributing dividends to shareholders.

It has a D/E ratio of 6.08, and the result means that Eterna Oil had N6.80 of debt for every Naira of equity. The company’s total debt spiked by 59.81 percent to N42.88 billion as at June 2023.

Notore Chemical Plc

Notore Chemical Industries PLC is a Nigeria-based fertilizer and agro-allied company. The Company is engaged in the supply of fertilizers.

It is interesting to note that the company is debt laden, but there are no threats to its going concern. It has a D/E ratio of 5.28, and that means Notore Chemicals had N5.28 debt for every Naira in equity.

International Breweries Plc

It appears brewers are the hardest hit from a tough operating environment as International Breweries which posted a net loss last quarter, has D/E ratio of 5.18, while total debt has hit N36.10 billion as at June 2023.

Total Energies Plc

TotalEnergies Marketing Nigeria PLC is a Nigeria-based company. The Company operates in the downstream sector of the oil and gas industry.

The company funds its operations with much more debt than equity, but it has strong fundamentals given it has a solid retail outlet sprawl across the country.

D/E ratio settled at 1.28 while total debt increased by 40.30 percent to N66.97 billion as at June 2023.

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