Companies Move to Restructure Foreign Currencies Loans to Mitigate Losses

As the Central Bank of Nigeria (CBN) continues to adopt measures to shore up the value of the Naira against the United States Dollar (USD) and other leading international currencies, some companies are makings moves to restructure their foreign loans into the local currency.

Following the high interest rates in the Nigerian financial markets, some companies obtained loans in foreign currencies (mostly USD denominated) to facilitate importation of production inputs, machinery and equipment. Some took foreign loans to finance other aspects of their operations.

However, the devaluation of the Naira by the Central Bank of Nigeria (CBN) last year led to huge costs to many companies, who now require high amount to service and repay those loans.

Consequently, many companies have recorded huge foreign exchange losses. THISDAY checks revealed that in order to mitigate the foreign exchange losses, some of the companies are making moves to restructure their loans into Naira.

The chief exchange officer of a leading company listed on the Nigerian Stock Exchange (NSE) who confirmed the development to THISDAY, said given the continued volatility in the foreign exchange market, the best solution is to restructure those loans so that payment can be made in Naira.

“Servicing and repayment of the foreign loans have not been easy. It has been a big drag on the performance of many companies. This situation is even worsened by the fact that there is short term assurance that the value of Naira would improve significantly against the Dollar soon. My Board of Directors has decided to restructure our loans into local currency. We are discussing with the foreign lenders on this matter,” the CEO said.

According to him, repaying the foreign loans in local currency will have less pressure on the companies as they would no longer look for FX that is in short supply now.

Apart from manufacturing companies that are suffering huge foreign exchange losses, the banks have equally been negatively affected by the devaluation as they record increased credit impairment charges.

Last week, Nestle Nigeria, which is leading food and beverages manufacturing firm recorded a fall of 67 per cent in profit for the year ended December 31, 2016. While the company posted improved revenue, profit fell by 67 per cent.

Speaking on the results, the directors of the Nestle had said revenue grew by 20 per cent in spite of the challenging operating environment and softer consumer demand due to rising inflation.

“This is a confirmation that our brands continue to enjoy strong patronage as they enable our loyal consumers to