Guinness Nigeria said on Monday it was seeking shareholder approval for a share issue to raise 40 billion naira ($127 million) which it needs to strengthen its balance sheet following recent losses.
The company, which is 54 percent owned by Diageo, reported in September last year it made a pretax loss of 2.35 billion naira in the year ended June 30, its first annual loss in 30 years.
Africa’s biggest economy is in recession brought on by low oil prices, which have slashed government revenues and crippled dollar supplies in the country, frustrating businesses.
In October last year the company reported it made a further pretax loss of 2.21 billion naira in the quarter ending Sept. 30, compared with a profit of 517.6 million naira in the same period of 2015.
Shareholders will vote on the share sale on Jan. 24
Guinness Nigeria shares, which have fallen 19 percent this month, rose 2.2 percent to 68.70 naira on the Lagos bourse on Monday following news of the rights issue.
“Guinness Nigeria Plc believes the rights issue will allow the company to optimize its balance sheet improving its financial and operational flexibility,” it said in a notice to shareholders.
It said in a statement Diageo was fully in support of the company, its board and strategy and was willing to take up its rights in the share issue to maintain its shareholding.
In October Diageo scrapped plans to lift its stake in Guinness Nigeria due to the tough conditions in one of its biggest markets for the world-famous stout. However it granted the Nigerian unit a $95 million loan facility to help it cope with dollar shortages.
As of October last year the Nigerian subsidiary had only drawn $30 million from the facility.
Diageo had initially planned to buy 15.7 percent of Guinness Nigeria for up to 41.37 billion naira, which would have increased its stake to 70 percent.
“Diageo’s decision not to proceed with the tender offer was to allow it focus on providing necessary support on an ongoing basis to Guinness Nigeria to ensure the company continues to operate efficiently in a very challenging macroeconomic environment,” the Nigerian company said in a statement.
It added that Diageo intended to convert the outstanding loan granted to the company and that directors of the Guinness Nigeria believed this was beneficial in the wake of the weakening naira currency.
The brewer said on Monday it would also seek shareholder approval to allow lenders to the company to convert their debt to equity by buying new shares in the rights issue. Source: Reuters