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Higher prices loom as businesses rely more on loans to survive

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Nigerians will soon experience another wave of increases in the prices of goods by major manufacturers as most of them now depend more on loans to fund their operations, resulting in higher interest payments and increased cost of production.

Financial Vanguard investigations show that due to scarcity of foreign exchange, general cash flow challenges and other economic headwinds during the period, major manufacturing firms sustained their businesses with bank loans amounting N1.833 trillion in the nine months of the year 2023 , 9M’23.

The amount indicates increased borrowing of about 52.6% higher than the N1.2 trillion in the corresponding period of 9M’22.

Financial experts say the companies may have ended up in a debt trap following the rise in Monetary Policy Rate, MPR regime, sustained by the Central Bank of Nigeria, CBN throughout the review period in order to tame inflation that rose to 28.92 % as at December 2023, a development that triggered rising lending rates across the banking and finance sector.

This development, according to financial experts, indicates that the companies that borrowed huge in the 9M’23 are now caught in a serious debt situation as cost of operating capital is now rising, a situation that will impact their profit negatively, and also restrict their ability to pay higher dividend.

Financial information from 17 leading manufacturing companies listed on the Nigerian Exchange Limited, NGX, showed that the finance cost (interest on borrowing) rose by a significant 332.3% percent to N589.623billion in 9M’23 from N136.379 billion in 9M’22.

The companies include: Nigerian Breweries, Dangote Cement, Lafarge Africa, Guinness Nigeria, Gsk, Beta Glass, Unilever Nigeria, Dangote Sugar, Okomu Oil.

Others are Nestle Nigeria, BUA Cement, Notore Chemicals, NASCON Allied Industries, Cadbury Nigeria, BUA Foods, Vitafoam Nigeria and International Breweries.

Analysts and investment experts have decried the high cost of borrowing from the banks, saying that the capital market remains the best financing option for manufacturers to run on long term funds.

International Breweries led the borrowing chart in absolute term recording N323.25 billion in 9M’23 from N148.99 billion in 9M’22. It was followed by Nigeria Breweries whose borrowing rose to N307.99 billion from N113.69 billion in the corresponding year 2022.

Dangote Cement occupied the third position posting N267.13 billion from N269.19 billion in 9M’22. It was followed by BUA Cement occupying the fourth position as its borrowings rose to N258.26 billion from N97.46 billion while BUA Foods followed as its borrowings surged to N 237.79 billion as against N211.67 billion in 9M’22.

Analysts’ insight

Victor Chiazor, Analyst and Head of Research & Investment at FSL Securities Limited said: “The manufacturing sector will continue to be negatively impacted by the high finance cost, especially given that the banks all responded to the high MPR. Until the Benchmark interest rate is reduced by the CBN, the banks won’t drop their interest rate and the high interest expense will continue to weaken the profitability of manufacturing companies and even throw some of them into loss positions.

“In the course of the year, if we see inflation taper down, the MPC team may begin to ease its hawkish stance and drop the MPR which should lead to a gradual drop in interest rates. However if rates remain high, the real sector of the economy will continue to struggle as the interest rates would be too expensive for businesses to thrive.

Also, though expensive, the option of raising equity capital remains viable especially for those who have impressive earning forecast, strong business model and a compelling story to tell. In the course of the year we may see one or two manufacturing companies raise equity capital from the capital market to support their businesses.”

Commenting on the cost of borrowing, he said: “The astronomical jump in finance cost relative to a midsize increase in actual borrowings by these public companies in a 9-month period of 2023 could have been due to multiplicity of factors around inflation: depreciation of the Naira; re-pricing of loans and other assets by lenders; high input cost; reduction or non availability of suppliers’ credit; etc.

The result of this is more inflationary pressure, as the affected companies are pressured to re-price their earning assets to recover costs or reduce losses.”

On government rendering support to the manufacturing sector, he said: “The government may not be able to assist every sector, except for a few companies who have benefited from CBN intervention funds and single digit interest rate borrowing, most are exposed to more of bank borrowing which will be highly toxic to business operations if interest rates remain elevated.”

Reacting to the increase in borrowing, David Adonri, analyst and Executive Chairman at Highcap Securities Limited, said: ” The manufacturing industry was first battered by the rising inflation throughout year 2023 which escalated their costs. Due to decline in purchasing power of consumers their cost recovery efforts failed to preserve their working capital. Hence, their resort to higher bank credit to keep them alive. With higher credit, finance cost will escalate.

“The second reason behind the balloon of their finance cost is the collateral damage they suffered from floating of the Naira. Their hard currency liability exposures magnified in multiple folds when the Naira suffered heavy depreciation. As a result, they had to borrow more money locally, to meet outstanding obligations.

This year, the factors that pressured them into excessive borrowing may not be replicated. The economy is expected to readjust to a new price level where prices will be more stable. However, to repair their damaged balance sheets, manufacturers may need to refinance their huge debt through the capital market.”

On how government intervention can aid manufacturers, Adonri, said: “The administrative intervention of government in the credit market through CBN has not been very effective. It continues to distort the market mechanism that ought to efficiently allocate credit in the economy. The interventions have also not been appropriately directed to the foundational sectors of the economy.

Fiscal intervention can be by way of subsidy to manufacturers to enhance production while monetary policy should target low interest rate environment. If manufacturing inputs can be internalized through appropriate fiscal measures, then manufacturing cost can reduce to the point where finance cost will become negligible.”

Commenting on the borrowings by manufacturing companies, an investment expert and CEO, Wyoming Capital and Partners, Tajudeen Olayinka, said: “Companies can borrow to improve production capacity and reduce average cost. Where this is the case, such borrowing is considered positive, and could improve fortunes of shareholders of the company. Where such borrowing does not improve production efficiency, it can become negative to the value of the company and make shareholders worse off. This is what most companies try to consider before borrowing from short-term money market or long-term capital market.”

On the benefits of borrowing by manufacturing companies, he said: “Borrowing that improves operational efficiency would naturally benefit customers and other stakeholders. Borrowing must be done to improve shareholders wealth; and customers must have been given thoughtful consideration before embarking on such borrowing.”

However, he lamented that, “Short-term borrowing from banks could be more expensive at this time, especially if we consider the effect of rising inflation and interest rate hike by Monetary Policy Committee of CBN, which has compelled many banks to re-price loans and other financial instruments, leading to higher borrowing costs for firms and public companies. Borrowing from banks could be more problematic at this time.

Regardless of cost implications to public companies, short-term borrowings from banks might have been provided as bridging facilities for more flexible long-term capital already arranged by those companies, or as a way of obtaining working capital. It could also be a sign of weakness in annexing suppliers’ credit by some of those companies.”

On whether the government can aid manufacturers, Adeyinka said: “That could be another way of asking the government to provide financial subsidy, when they are already enmeshed in a fiscal crisis. I think the best way is to allow the market to function, so that assets are properly priced in the long-term interest of the economy.”

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Oborevwori Bags Silverbird Governor Of The Year 2023

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Delta State Governor, Rt. Hon. Sheriff Oborevwori has won the Silverbird Group Governor of the Year 2023 in recognition of his sterling accomplishments in the state.

Presenting the award to Oborevwori, on Sunday night in Lagos, former Governor of Ogun State, Chief Olusegun Osoba, congratulated Governor Sheriff Oborevwori for his administration’s achievements within nine months.

Receiving the award, Governor Sheriff Oborevwori thanked Silverbird Group for the honour and dedicated the award to all Deltans.

The governor, who was represented by his deputy, Sir Monday Onyeme, said: “We are very grateful to Senator Ben Murray Bruce and the entire management of Silverbird Group for this great honour. Little did we know that our modest achievements within the nine months we have been in office have been noticed.

“We came to serve Delta, and we are doing just that. In line with our MORE agenda, faculties have been built and commissioned, road infrastructure and bridges have been commissioned, and a lot more are ongoing. We have ensured we have qualified teachers in our primary schools.

“In less than nine months, the government has hired over 3,000 teaching and non-teaching staff to ensure that our primary schools are running. We want to assure Deltans that all nooks and crannies in the state shall be provided with quality infrastructures.

“We want to thank Deltans for all the cooperation they give us and the peace they provide. Delta is becoming an investment destination for Nigerians and foreigners alike. We will not get tired, and we will continue to do MORE because that is the mandate.

“In the next three or four years, we are going to see that education becomes better, more effective and easily accessible. We want to see a Delta State where peace will reign supreme. Industrialisation will be the order of the day. That is the vision!

“Education is the bedrock of development in any society. The people need to be educated to live a good life and embrace modernity.”

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Hunger: FG to begin nationwide distribution of grains soon

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Minister of Agriculture and Food Security Senator Abubakar Kyari disclosed this on Monday.

Recall that on Sunday many Nigerians stormed a government warehouse and emptied it of foodstuffs.

“Dear Fellow Nigerians,” he wrote on his official X handle. “In these trying times, I extend my sincere compassion to those affected by the hardships in the country. I understand the gravity of the situation, especially with the unfortunate event of foodstuff warehouse looting.

“Amidst these challenges, I want to assure you that our commitment to your well-being remains resolute. We shall commence the distribution of 42,000 metric tons of grains, as approved by Mr. President, across the 36 states of the federation as one of the programs to be rolled out this week.

“We are working hand in hand with NEMA and the DSS to ensure that the grains get to the right people in the right packages and quantities. Furthermore, 58,500 metric tons of milled rice from mega rice millers will also be released into the market for stabilization.”

The minister who hailed the resilience of the Nigerian people, urged them to back President Bola Tinubu’s government in its quest to address the challenges facing the country.

“I acknowledge the strength of the Nigerian people, and it is this resilience that will guide us through these difficult times. Let us stand together to support Mr. President in his strive for a better Nigeria,” Kyari said.

“Our government under the leadership of President Bola Ahmed Tinubu is committed to addressing these challenges and working towards a more secure and prosperous future for all.”

The development is part of moves by the government to curb the hardship in the country. Since the removal of fuel subsidy and the floating of the naira, the cost of living in Nigeria has reached new highs.

There have been protests in several parts of the country as Nigerians sought the government’s attention to address the economic hardship. Several warehouses and food trucks have also been looted in some places.

But the Federal Government is calling for patience, assuring that the reforms by the Tinubu-led administration are set to yield fruit.

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Financial Crimes: Reps To Issue Warrant Of Arrest On Binance Chief Executive For Refusal To appear

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…as legal adviser say two executives were arrested by NSA
By Gloria Ikibah
The House of Representatives had said it will evoke its constitutional powers against Binance Holdings Limited and issue a warrant of arrest for its failed to appear for public hearing to respond to series of allegations of terrorism,  money laundry,  tax invasion among other financial crimes.
This was the resolution of the House Committee on Financial Crimes Chaired by Rep. Obinna Ginger, at its resumed investigative hearing on Monday in Abuja.
Naijablitznews.com recalled that a coalition of civil society organisations led by the Niger Delta Youth Council Worldwide and Empowerment for Unemployed Youths has written a petition against Binance Holdings Limited in January to investigate the firm’s activities.
The Committee had summoned the Managing Director of Binance, Richard Teng in a letter dated 12th December, 2023 and signed by its chairman, Rep. Ginger Onwusibe requesting his appearance at the hearing.
However, instead of the Management team of the Company to appear before the House Committee as required by law, a team of lawyers was sent, but were told by the committee that their representations will not be accepted.
Rather than appear before the committee Binance wrote through it’s lawyer Senator Ihenyen.
Speaking during the public hearing, in Abuja on Monday, the committee chairman, decried that the Chief Executive of Binance Holding limited, Mr Richard Teng has refused to appear before the committee after series of invitations.
Lawmaker stated that there was need to report to the larger House to evoke its constituonal powers for the arrest of Binance Executive.
Rep. Dogongaro therefore moved a motion for the committee to report to the larger house to enable it use its powers to arrest Binance Executives and make them appear before the committee.
The Chairman put it to a vote and it was unanimously adopted by committee members.
Rep. Ginger Onwusibe, while restating the resolve of the Committee to fight financial crimes maintained that, “the committee will be forced to recommend to the House to arrest Binance executive since they have failed to appear before the committee.
“As long as the committee is concerned,  Binance is not at this meeting because we have said it severally that we do not want representation by lawyers but the chief executives should appear before the committee.
“Binance is not here. We have taken a position on it in our last sitting that we are not going to entertain legal representation from Binance and that position stands.
“Based on the fact that Binance is not here, we need to make a recommendation to the House of Representatives for the House to invoke its powers of subpoena to issue a warrant for the leadership of Binance to be arrested and be brought to this Committee to answer questions of the grave allegations leveled against them in the petitions brought to us by the Empowerment for Unemployed Youths and Niger Delta youths Council.
“This Committee has resolved to recommend to the House to invoke its constituonal powers by issuing a subpoena and a warrant for Binance executives to be arrested and brought to this Committee to answer these questions relationship financing of terrorism, money laundering and other financial crimes as stated in the petition including evasion of tax.
“We thanks the petitioners for unearthing this grievous financial crimes going on in this country for more than six years now. Binance has been operating in the financial space of this country for more than six year and they have not less than 20 million Nigerians that they are exploiting.”
Earlier in his response, the legal team of Binance led by Senator Ihenyen who’s representation was rejected said Binance executives did not appear before the committee because two other executives of the organisation were arrested upon their arrival to Nigeria by the office of the National Security Adviser and still in custody.
According to him, other executives of the company which is not based in the country, were apprehensive because of two of their executives that were arrested recently and are still in custody.
He said: “Indeed we acknowledge that our client Binance was clearly given the time within it must respond to the petition as well as appear today before this committee
“Binance has been able to response to send a written responds dated 28 February 2024.
“The response to the petition attaches two annexures for purpose of fully responding to the issues and allegations raiswd by the petitioners in their written petition dated 5th December 2023.
“The second resolution was that Binance representatives must be here. We would like to plead your indulgence that the situation that Binance has been faced with particularly in the last seven days have forced a very difficult situation on it. What has happened is that two Binance executives who came into the country were arrested by another Nigerian authority specifically the National Security Adviser. And since then till date this two Binance executives are still in custody. For this reason it has been extremely difficult for the global of Binance to mobilize other executive members of the company to Nigeria because there is genuine concern about their safety and security. So this is the situation that we have been forced to contend with. This is not a show of any disrespect to this House
“We believe the responses given by our clients would to a large extent address any outstanding issues or issues raised by the petitioners. If there are any outstanding areas that Binance has to respond to either by being in Nigeria physically or by making further written correspondence, we will do our best as legal counsel in Nigeria to advice Binance to proceed accordingly subject to the discretion of this House.
When asked by Rep. Ginger if those two arrested were coming to respond to the invitation of the committee or for another invitation.
He responded” As the legal counsel to Binance, we have information that Binance was planning to have Representatives on the ground but at time these two persons were arrested, it had not been expressly communicated to us that these two persons are the delegates for that purpose.
“We are aware there are quite a number of executives spaning the region of Europe, America and Asia in the Binqnce team. It is possible that one of these persons who was arrested or none of these persons were going to be delegates to this Honourable House today.
“Following the arrest of two executive,  other persons could could not come into Nigeria because if the first if been arrested too.
“Binance has responded appropriately to the demands of the committee and as our client we are pleading that this honorable committee consider taking the report”, he added.
Naijablitznews.com reports that Binance Holdings Limited, operators of Digital Assets Exchange in Nigeria has been operating in Nigeria over 6 years allegedly without any adherence to financial regulatory frameworks and has been accused of exploiting Nigerians and committing other financial crimes.
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