Nigerian Breweries, Dangote Sugar, Nestle, 8 Others Borrow N1.8trn in 6 months Amid FX Scarcity, Others
- A total of 11 FMCGs increased borrowing to N1.8 trillion in first half of 2023
- Analysts criticized the high cost of borrowing but advised capital market equity as option for long-term financing
- International Breweries led the chart in terms of relative growth, while Unilever and Guinness Nigeria were followed as second and third.
Leading consumer goods manufacturing companies are experiencing severe finance constraints against a backdrop of rising interest rates and a lack of foreign currency.
Financial statements by 11 FMCGs reveals that the companies have increased their exposure to banks to N1.834 trillion in the first half of 2023, H1'23—a 24.5% increase over N1.473 trillion in the corresponding period of 2022, H1'22—in order to sustain their businesses, according to Vanguard.
Source: UGC
Unilever Nigeria Plc, one of the leading consumer goods companies, had earlier announced that it will stop manufacturing some of its popular products, including Omo and Lux, according to earlier report by Legit.ng. The list of other top FMCGs can be found here.
Cost of borrowing increased
The data showed that the finance cost of borrowing increased dramatically by 411.2% to N330.972 billion in H1'23 from N64.745 billion in H1'22 due to the Central Bank of Nigeria's (CBN) steadily increasing its Monetary Policy Rate (MPR), which reached 18.75% as of last month.
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Unilever Nigeria Plc, Nestle Nigeria Plc, Cadbury Nigeria Plc, NASCON Allied Industries Plc, Nigerian Breweries Plc, Dangote Sugar Refinery Plc, MCNICHOLS Consolidated Plc, Guinness Nigeria Plc, BUA Foods, P Z Cussons Nigeria Plc, and International Breweries Plc are the companies listed in the report, as highlighted by Vanguard.
International Breweries led the borrowing chart in terms of relative growth, moving from N110.799 billion in H1'22 to N305.300 billion in H1'23. Unilever Nigeria came next, increasing its borrowing by 109.3% from N23.859 billion in H1'22 to N49.943 billion.
Guinness Nigeria moved up 103.6% to N63.755 billion in HI'23 from N31.309 billion in H1'22 to claim third place. The fourth-placed Nestle Nigeria came in at N264.436 billion, up 79.9% from N147.006 billion in borrowings, and the fifth-placed Nigerian Breweries Nigeria borrowed N253.153 billion, up 13.9% from N222.249 billion.
Taking the third place, Guinness Nigeria increased 103.6% from N31.309 billion in H1 of 22 to N63.755 billion in HI of 23. Nestle Nigeria, which finished in fourth, borrowed N264.436 billion, up 79.9% from N147.006 billion and Nigerian Breweries Nigeria, which came in fifth, borrowed N253.153 billion, up 13.9% from N222.249 billion.
The high cost of bank borrowing has been criticised by analysts and financial professionals, who claim that capital market equity is still the best long-term financing choice for firms to meet operational needs.
Additionally, they suggested that industrial businesses think about using Commercial Papers (CPs) for short-term financing in order to cut costs and circumvent the strict requirements of banks.
Nigerian Breweries announces price adjustments, reveals reason for action
Legit.ng had reported that amid headwinds and economic crunch in Nigeria, Nigerian Breweries announced a price increase on all its products, effective August 10, 2023.
In a letter, the company said the price increase became necessary because of the continued rise in input costs and the necessity to mitigate the impact.
BusinessDay reports that following rising inflation, currently pegged at 22.79%, and the Forex float, which led to the naira exchanging for as high as N869 per dollar at the official market, companies like Nigerian Breweries have faced significant challenges.
Source: Legit.ng
