SHAREHOLDERS of PZ Cussons Nigeria Plc have described the company’s management plans to convert $34.26 million (N51,795,312,646.72) debt to equity as lacking integrity.

Investopedia describes a debt-equity swap as a financial restructuring tool where a company exchanges its outstanding debt for equity shares. This type of transaction allows a company to reduce its debt burden by converting creditors into shareholders.

Many shareholders who spoke with The ICIR about the development said the decision would not be in the best interest of minority shareholders.

The concern came barely a week after PZ Cussons Nigeria Facts Behind the Figures Presentation held at the Nigerian stock exchange in Lagos on Wednesday, February 12.

At that meeting, shareholders had called on the company’s management to be more accountable and return the company to profitability now that they had considered remaining listed on the Nigerian stock exchange, The ICIR  exclusively reported.

The company had approached the Securities and Exchange Commission (SEC) for a smooth exit from the exchange citing its indebtedness.

In a statement on Saturday, February 16, PZ Cussons Nigeria said it wants to convert part of its debts to equity, subject to regulatory approval.

According to the statement, the board of directors decided to convert $34.26 million of the company’s outstanding loan of $40.26 million into equity after careful deliberation.

It stated that the $34.26 million debts would be converted to equity at a price of N23.60 per share and would create 2,194,716,637 new ordinary shares at a value of 50 kobo each for the parent company, PZ Cussons Holdings, increasing its share capital by N1,097,358,318.50.

It would also raise the parent company stake from 73.27 per cent to 82.79 per cent.

“Conversion of debt to equity is a normal practice but I don’t have the details yet. I expect the company to organise an EGM (extraordinary meeting) where the details will emerge and then the shareholders will exhaustively engage with board and management and cross-pollinate ideas and eventually be on the same page,” the chairman, Abuja branch of Noble Shareholders Association, Innocent Peter Nwokocha, said.

He expected that PZ Cussons should have waited for its EGM to make its plans known to shareholders either for approval or for their views before announcing it at the news corridor.

“I think somebody has said that they want to stylishly delist. Delisting is not a bad thing, more so if it is for the overall interest of shareholders.

“I think they have something to hide,” Nwokocha said.

For him, conversion of debts to equity is a normal practice, but the way PZ Cussons reveals its plans shows the company has a lot of skeletons in its cupboard.

Noting that PZ Cussons held its fact behind the figures presentation recently, he said, “If you tell me something in the morning and in the evening you are singing a different song, I have a reason to doubt you. It is a measure of mutual mistrust. And that is exactly what we are seeing. They are having integrity issues. I think they should  be opened and clear to us.”

He believes the parent company which has majority shares in the company, could easily counter the views of the minority shareholders but wondered why the company does not want to follow the down rules.

“If they do a voice vote at the EGM, which is allowed in the Law, by the pool, I think all their majority shareholders will be on their side.

“But it will be important to note that we did say no and it is good we exhaust the issue before the voting, knowing that they have the numbers to counter whatever the minority shareholders say,” Nwokocha said.

Converting $34.26 million debt to equity is not going to solve the problem facing PZ Cussons, the national chairman of the Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said.

He pointed out that parts of the debts swap to equity, if added up to the parent company’s stake, might eat into the 20 per cent free float threshold required to be kept by the Nigerian Exchange Limited (NGX)  rule.

Breaching this rule may lead the company to demand to be delisted from NGX, Okezie explained.

“Where will the shareholders go from there? You can see from my little analysis it may help them to consolidate, and Nigerian minority shareholders will be at a disadvantage or forced to exit from the company. That is the true position of things,” he said.

According to Okezie, the only way out is for PZ Cussons Nigeria to do rights issues to raise money to restructure the company.

It could also ask the parent company to renegotiate the debts since it was part of the problem that caused the debts to be incurred in the first place through over-invoicing or non-remittance of dividends accrued to them.

Okezie further lamented that PZ Cussons Holdings still exports finished products to Nigeria as well as technical services, asserting that these issues helped to increase the company’s foreign debt obligation.

On his part, the national president of New Dimension Shareholders, Patrick Ajudua, said the PZ Cusson’s plan to convert debt to equity would not be fair to minority shareholders.

He believes that the trust between minority shareholders and majority shareholders of PZ Cussons had completely broken down with the new development, criticising the management for trying to box shareholders into a corner.

“It is a way of unboxing shareholders and diluting the value of our shares in the company despite various signals raised by shareholders on the financial performance and sales of assets.

“So, they expect the shareholders to now bear the burden of losses,” Ajudua said.

He expressed that shareholders are not against the debt-to-equity conversion but that their objection is the proposed rate of conversion by the major shareholder, PZ Cussons Holdings, United Kingdom, which is not intended to favour the principle of fairness, equity, and justice.

“It is unjust, reprehensible, and unfair to minority shareholders who have bear the pain of loss of value on their investment and non-payment of dividends.

“This major shareholder has over the past 5 years unceremoniously embarked on the sale of an asset without ploughing back the proceed to bridge financial haemorrhage rather it is deployed in administrative use,” Ajudua maintained.

He asserted the representatives of the major shareholders have been receiving salaries in foreign currency, paying a four per cent fee from gross profit, including technical fees and management fees.

“Therefore, going by the current market value of PZ Cussons via 52 weeks high, the company ought to pay N40 per share, which is just and fair.

“If the rate of N40 is agreed it will be able to address our concern and return the company to profitability,” Ajudua added.

How PZ Cussons Nigeria crawled into $40.26m debts

In June 2022, PZ Cussons Holdings Limited (PZCH) loaned $40.26 million to PZ Cussons Nigeria Plc (PZCN) to help cover raw material and operational costs, which were difficult to manage due to currency shortages.

The significant devaluation of the naira experienced between 2023 and 2024 negatively impacted PZCN’s financial results and led to a rise in its foreign currency-denominated loans.

In response to these challenges, the company’s board decided to strengthen its balance sheet by settling the outstanding shareholder loan obligation and reducing exposure to foreign currency fluctuations.

“After extensive discussions, we have agreed that converting a portion of the outstanding loan, amounting to USD 34.26 million, into equity is the most effective strategy to reduce debt and strengthen the Company’s balance sheet, while significantly minimising the risk of future foreign exchange losses,” the company explained.

If the conversion sails through a remaining shareholder loan balance of $6 million will still be payable to the parent company.