Board Approves Loan-to-Equity Conversion
PZ Cussons Nigeria Plc (PZCN) has announced that its board of directors met on February 13 and approved the conversion of $34.26 million (equivalent to N51.79 billion) from its outstanding intercompany loan into equity. This loan is owed to its parent company, PZ Cussons (Holdings) Limited (PZCH), which currently holds a 73.27% stake in PZCN.
Background on the Loan
In June 2022, PZCH provided an intercompany loan of $40.26 million to PZCN. The purpose was to help settle foreign currency payables linked to raw material imports, operational costs, and other expenses that could not be cleared due to Nigeria’s forex scarcity.
However, following the liberalization of the forex market in June 2023, the naira experienced significant devaluation throughout 2023 and 2024. This resulted in a sharp increase in the naira equivalent of PZCN’s foreign-denominated loans, negatively impacting the company’s financials.
Financial Impact and Challenges
The devaluation led to an unrealized exchange loss of N157.9 billion, contributing to a post-tax loss of N76 billion and a negative shareholders’ equity position of N27.5 billion for the fiscal year ending May 31, 2024.
Despite PZCN’s strong operational growth—with year-on-year revenue increases of 34% and 42% for the full and half financial years ending May 31 and November 30, 2024, respectively—the continued depreciation of the naira has eroded profits. As of November 30, 2024, the company’s net equity position worsened to negative N34.5 billion.
Why Convert Debt to Equity?
The board believes the loan-to-equity conversion offers several benefits to shareholders and stakeholders:
- Stronger Balance Sheet – The move will free up future cash flows, allowing the company to allocate resources more effectively toward strategic growth initiatives.
- Reduced Foreign Exchange Risk – Converting the loan into equity mitigates the impact of currency fluctuations on earnings, minimizing potential forex losses.
- Improved Financial Ratios – Key financial indicators such as debt-to-equity and coverage ratios will improve, potentially boosting the company’s financial stability and creditworthiness.
- Positive Net Asset Position – The company aims to return to a positive equity standing, which could increase investor confidence, enhance share valuation, and improve stock liquidity.
The Board’s Decision-Making Process
The board carefully evaluated various options to address the company’s negative equity. After thorough discussions, it determined that converting $34.26 million of the outstanding loan into equity was the most effective strategy for strengthening PZCN’s financial position and mitigating foreign exchange losses.
Following this conversion, PZCN will still owe a remaining shareholder loan balance of $6 million to PZCH. However, the terms of this residual loan will remain unchanged. The board highlighted that this loan is provided on highly favorable terms compared to prevailing lending rates in Nigeria, enabling the company to manage its financing costs while sustaining operational cash flow.
Shareholders’ Approval and Next Steps
The company has informed shareholders, the investing public, and the Nigerian Exchange Limited (NGX) about the board’s resolution. Shareholders will be asked to approve this decision at an Extraordinary General Meeting (EGM) scheduled for March 13.
At the EGM, PZCN will also seek approval to increase its share capital from N1.985 billion to N3.082 billion by issuing 2,194,716,637 new ordinary shares of 50 kobo each. These shares will have the same rights and privileges as existing ordinary shares.
Additionally, the board will request approval to allot these newly created shares to PZCH at N23.60 per share, which was PZCN’s closing price on February 12, 2025. The allotment will be subject to regulatory approvals.
About PZ Cussons Nigeria
PZCN is a major player in Nigeria’s consumer goods sector, operating across baby care, hygiene, beauty, and electrical appliances. The company manufactures and distributes leading brands such as Morning Fresh, Canoe, Premier, Joy, Stella, Venus, Imperial Leather, Cussons Baby, Carex, and Robb. It also assembles and distributes refrigerators, freezers, air conditioners, and washing machines under the Haier Thermocool brand. PZCN operates as a subsidiary of PZCH.
