Investors Anxious as Soaring Exchange Rates Threaten Dividends

Shareholders of Nigerian companies holding foreign loans have voiced their deep concerns over the adverse impact of the escalating exchange rate on their anticipated dividends. The ongoing depreciation of the naira is resulting in elevated costs for businesses involved in importing essential raw materials and equipment, ultimately burdening consumers who are forced to bear the brunt of increased prices for imported goods and services.

In light of this, shareholders are strongly advocating for the government to institute effective measures that can stabilize the exchange rate, foster export growth, and clamp down on illicit foreign exchange trading activities to ameliorate the negative repercussions on businesses and their stakeholders.

**Exchange Rate Woes**

A significant number of shareholders in quoted companies listed on the Nigerian Exchange Limited are now apprehensive that the heightened exchange rate could potentially thwart their expectations of receiving dividends, especially those companies that are exposed to foreign loans. The deteriorating state of the naira, a consequence of the harmonization of exchange rates, has given rise to a surge in the exchange rate, which, in turn, is posing a substantial threat to the profitability of Nigerian companies with foreign loans.

The naira’s value plummeted to N847/$1 on a Tuesday, marking the second lowest level ever recorded, and signifying a significant 6.93% depreciation from the N793/$1 noted just one day prior. On this disconcerting day, the intraday high reached N900/$1, while the intraday low hit N700/$1, underscoring a substantial N200/$1 discrepancy. Forex turnover for the day amounted to $88 million, indicating an 8% increase compared to the preceding day.

On the unofficial black market, the exchange rate remained exceptionally weak, with rates dipping as low as N1,300/$1 from unofficial dealers and N1,256/$1 from peer-to-peer traders. This is placing a heavier burden on Nigerian companies in repaying their foreign loans, which are suddenly more expensive than ever before.

**Determinants of Naira Depreciation**

The recent depreciation of the naira can be attributed to several factors. A heightened demand for dollars from importers, coupled with the continued decline in Nigeria’s foreign exchange reserves, has exerted tremendous pressure on the national currency. The Central Bank of Nigeria has intervened in the foreign exchange market in an attempt to stabilize the naira, but these interventions have yielded limited success, leaving businesses and consumers grappling with the consequences.

**Shareholder Concerns**

Shareholders, such as Mr. Joseph Bamidele, an independent shareholder, have expressed their concerns over the precarious financial position faced by Nigerian companies due to the escalating exchange rate. Bamidele articulated that numerous Nigerian companies are grappling with foreign exchange risk, as they are obligated to service their loans in foreign currencies. The burgeoning exchange rate is wreaking havoc on the profitability of Nigerian companies with foreign loans, thereby adversely affecting the dividends they can distribute to their shareholders. As the naira continues to depreciate, the foreign currency liabilities of these companies rise while the value of their foreign currency assets declines. Consequently, this imbalance can lead to a reduction in their profits. Numerous Nigerian companies have already reported elevated debt servicing costs and diminished profits due to the ascending exchange rate. Furthermore, the surging exchange rate is making it increasingly challenging for Nigerian companies to secure new foreign debt, as the depreciating naira elevates the cost of borrowing in foreign currencies, thereby discouraging companies from pursuing new foreign debt, thus limiting their capacity to expand and grow.

Moses Ibrude, the National Co-ordinator of the Independent Shareholders Association of Nigeria (ISAN), added his voice to the growing chorus of concern. He highlighted the significant challenges faced by Nigerian companies with foreign loans in the face of the rising exchange rate. According to Ibrude, many of these companies are now grappling with losses, which directly impact their shareholders, particularly pensioners who rely on dividends for their sustenance. He cited the example of Guinness Nigeria Plc, which, at a recent annual general meeting, faced shareholders’ demands for dividends that the company was unable to fulfill due to its losses. These losses, as Ibrude stressed, are not the fault of the companies themselves but are instead the outcome of economic challenges stemming from the ascending exchange rate. Companies with dollar-denominated loans are being severely affected by the elevated exchange rate. Ibrude underlined that this trend is pushing such companies towards insolvency, rendering it nearly impossible for them to chart a stable course forward.

Moreover, Ibrude emphasized the crippling effect of the surging exchange rate on companies with foreign loans. This not only places them in jeopardy but also hampers their ability to devise viable business plans. Several companies may have the necessary funds to continue operations, but their incapacity to access forex for importing crucial raw materials has plunged them into a vortex of losses. The unrelenting rise in the exchange rate has sown seeds of uncertainty in these companies. To rectify this situation, Ibrude called upon the government to take decisive action by ensuring a surge in dollar inflow and implementing stringent measures to curb dollar racketeering within the country. The government, in his view, should also actively promote mass production and exportation of Nigerian goods and services, thereby increasing the country’s dollar reserves. Moreover, tackling the issue of incessant oil thefts and sealing revenue leakages is paramount.

Boniface Okezie, the National Chairman of the Progressive Shareholders Association of Nigeria (PSAN), echoed these concerns, emphasizing the challenges faced by Nigerian companies, particularly those in the manufacturing sector, due to the surge in the exchange rate. These difficulties have hampered the ability of companies to service their foreign loans, even though these loans were initially procured at lower interest rates. Companies now find themselves unable to access foreign currency for servicing their debts, leading to some, like GSK, deciding to exit the Nigerian market, while others are apprehensive about investing further in the country. Shareholders are caught in the crossfire as these companies teeter on the edge of operating at a loss and the imminent threat of shutting down production. Such a scenario would translate into shareholders losing their dividend income and the value of their investments. Okezie called upon the Nigerian government to proactively address the surging exchange rate and its consequences for businesses and shareholders. This includes implementing policies that encourage foreign investment and export growth while also taking stringent measures to combat illicit foreign exchange trading activities.

Patrick Ajudua, the President of the New Dimension Shareholders Association, emphasized the challenging environment created by the rising exchange rate, particularly for companies in the capital market, especially in the manufacturing sector. He highlighted that the recent devaluation of the currency and the unification of exchange rates have had a detrimental impact on the bottom line of these companies. Most of them have found it increasingly difficult to access foreign exchange, making it impossible to meet their obligations to foreign creditors and repatriate their returns on investment. In addition, they are facing difficulties in importing the raw materials necessary for production, leading to losses on the bottom line and, consequently, difficulties in paying dividends to shareholders. Ajudua suggested that the government should establish a foreign exchange intervention fund that companies can access, and these companies should start sourcing raw materials locally to mitigate the adverse impact of the surging exchange rate.

In conclusion, the escalating exchange rate in Nigeria is a source of distress for shareholders and businesses, particularly those exposed to foreign loans. As the naira continues to depreciate, the financial outlook for these companies grows increasingly bleak, jeopardizing their ability to operate and meet their financial commitments. The Nigerian government must

implement comprehensive measures to stabilize the exchange rate, promote investment and export growth, and eliminate illegal foreign exchange trading to safeguard the interests of businesses and their stakeholders. Failure to do so could result in a cascade of negative consequences for the country’s economy and its shareholders.