Shareholders fear rising exchange rate will deny them dividends

Shareholders of Nigerian companies with foreign loans are concerned about the impact of the elevated exchange rate on their expected dividends.

The depreciation of the naira has led to increased costs for businesses importing raw materials and equipment, and consumers are paying more for imported goods and services.

The government is urged to implement measures to stabilize the exchange rate, encourage export growth, and crack down on illegal foreign exchange trading to mitigate the negative impact on businesses and shareholders.

Some shareholders of quoted companies listed on the floor of the Nigerian Exchange Limited believe that the elevated Exchange rate will deny them expected dividends from the companies especially those that are exposed to foreign loans.

Shareholders interviewed by Nairametrics following the free fall of the naira arising from the harmonization of exchange rates indicated that the rising exchange rate is hurting the profitability of Nigerian companies with foreign loans.

The naira fell to N847/$1 on Tuesday, its second lowest level ever, according to data from the official NAFEM window. This represents a 6.93% depreciation from the N793/$1 recorded a day earlier.

The intra-day high on Tuesday was N900/$1 and the intra-day low was N700/$1, representing a huge disparity of N200/$1. Forex turnover for the day was $88 million, an 8% increase from the prior day.

On the black market, the exchange rate remained weak, with quotes as low as N1,300/$1 from unofficial dealers and N1,256/$1 from peer-to-peer traders. This is making it more expensive for Nigerian companies to repay their foreign loans.

The recent depreciation of the naira is a result of a number of factors, including the rising demand for dollars from importers and the ongoing decline in Nigeria’s foreign exchange reserves.

The Central Bank of Nigeria has intervened in the foreign exchange market in an attempt to stabilize the naira, but these interventions have had limited success.

The depreciation of the naira is having a negative impact on Nigerian businesses and consumers. Businesses are facing higher costs for importing raw materials and equipment, while consumers are paying more for imported goods and services.

What the shareholders are saying

Mr. Joeseph Bamidele, an independent shareholder, speaking to Nairametrics exclusively said Nigeria companies face low or no profits due to the rising exchange rate.

“This is because many Nigerian companies are exposed to foreign exchange risk, as they have to repay their loans in foreign currencies.

The rising exchange rate is hurting the profitability of Nigerian companies with foreign loans and that will also impact negatively on dividends to shareholders,” he said.

Bamidele noted that as the naira depreciates, the value of the companies’ foreign currency liabilities increases, while the value of their foreign currency assets decreases.

“This can lead to a decrease in the companies’ profits. Several Nigerian companies have already reported higher debt servicing costs and lower profits due to the rising exchange rate.

The rising exchange rate is also making it more difficult for Nigerian companies to raise new foreign debt.

As the naira depreciates, the cost of borrowing in foreign currencies increases. This is discouraging companies from raising new foreign debt, which is limiting their ability to expand and grow,” he said.

The National Co-ordinator of the Independent Shareholders Association of Nigeria, (ISAN) Mr. Moses Ibrude also in an exclusive chat with Nairametrics said that Nigerian companies with foreign loans are facing significant challenges due to the rising exchange rate.

Moses noted that many of these companies are incurring losses, which is affecting their shareholders, particularly pensioners who rely on dividends for survival.

“For example, at the recent annual general meeting of Guinness Nigeria Plc, shareholders demanded dividends, but the company was unable to pay due to its losses.

These losses are not the fault of the company, but rather the result of economic challenges caused by the rising exchange rate. Any company with dollar-denominated loans is being affected by the elevated exchange rate,” he said.

He noted that the rising exchange rate is hurting companies with exposure to foreign loans, putting them out of business and making it impossible for them to plan.

“Some of these companies have the cash to operate, but they cannot access forex to import raw materials. This is a terrible situation that has caused most of the companies to incur losses.

"The continuously rising exchange rate has created uncertainty for these companies. The government must find a way to earn more dollars and implement stringent measures to stop dollar racketeering in the country. They must be forced to bring the dollars they are stocking in their homes back into the system.

"The government should also encourage mass production and exportation of Nigerian goods and services to enable the country to earn more dollars. Tackling incessant oil thefts and blocking revenue leakages should also be prioritized,” he said.

The National Chairman of the Progressive Shareholders Association of Nigeria (PSAN), Mr Boniface Okezie in a chat with Narametrics said the Nigerian companies, particularly those in the manufacturing sector, are facing significant challenges due to the rising exchange rate.

Okezie noted that this has made it difficult for the companies to repay their foreign loans, even though they were initially obtained at lower interest rates.

“This is because they do not have access to foreign currency to service their loans. As a result, some companies, such as GSK, are exiting the Nigerian market, and others are hesitant to invest in the country.

This situation is also hurting shareholders, as companies are operating at a loss and are at risk of shutting down production.

This would mean that shareholders would lose their dividend income and their investment in the companies.

The Nigerian government must take steps to address the rising exchange rate and its impact on businesses and shareholders.

This includes implementing policies to encourage foreign investment and export growth, as well as cracking down on illegal foreign exchange trading,” he said.
The President of the New Dimension Shareholders Association, Mr. Patrick Ajudua said the rising exchange rate is a difficult moment for companies in the capital market particularly the manufacturing sector when it comes to exposure to forex.

Ajudua noted that the recent devaluation of currency & unification of exchange rates have negatively impacted on the bottom line.

“Most of these companies have found it difficult to access foreign exchange and therefore unable to meet their obligation to foreign creditors and even find it difficult to repatriate their returns on investment. The worst is their inability to import raw materials for production.

This no doubt has affected returns to shareholders as in most cases these companies experience losses in the bottom line and hence find it difficult to pay dividends to shareholders.

The solution is for the government to set up a foreign exchange intervention fund and make it accessible to these companies. Companies also must begin to localise sourcing of raw materials,” he said.