PZ Cussons’ $34.3 million debt conversion plan sparks controversy

PZ Cussons Nigeria’s proposed $34.3 million debt-to-equity conversion at N23.6 per share has triggered mixed reactions among shareholders. While some view it as a necessary move to rescue the company from financial distress, others fear it could pave the way for a forced buyout and eventual delisting.

A major concern among minority shareholders is the dilution of their stake, which they argued, could weaken their influence and expose them to potential undervaluation in a future buyout scenario.

President of the New Dimension Shareholders Association of Nigeria, Patrick Ajudua, described the deal as an ‘enslavement’ of minority investors, arguing that it would significantly erode their value in the company.

“The conversion formula is unfair. It is a strategy to box shareholders into a corner and dilute our stake. With a lower conversion rate, the majority shareholder strengthens its control, potentially leading to a buyout at an unfavourable price,” Ajudua said.

Also, former Secretary-General of the Independent Shareholders Association of Nigeria, Adebayo Adeleke, warned that the deal could weaken earnings per share and reduce returns for existing investors.

He also pointed out that while the debt conversion relieves financial pressure, the valuation disproportionately benefits majority shareholders. Despite the concerns, some investors believed that the conversion was a necessary step to prevent the company from collapsing under its debt burden.

President of the Ibadan Zone Shareholders Association, Eric Akinduro, acknowledged the dilution risk but argued that liquidation would be a far worse outcome.

“Yes, the ratio is low, but PZ is carrying a $34.3 million debt. If liquidation happens, shareholders lose everything. It is better to accept this deal and focus on rebuilding the company,” he said.

Executive Director of Halo Nigeria Capital Management Limited, Dr. Paul Uzum also backed the decision, citing similar moves by Cadbury Nigeria, which helped improve its financial position.

However, he noted that minority shareholders should have been allowed to maintain their stake at the same conversion rate.

“The real issue is the valuation of the swap. If minority shareholders had been allowed to participate, their concerns might have been eased,” Uzum said.
As PZ Cussons moves forward with its debt restructuring plan, the debate highlights broader concerns about corporate governance, shareholder rights, and the long-term implications of such conversions on market confidence.

Recall that PZ Cussons Nigeria plans to convert a $34.3 million loan from its parent company, PZ Cussons (Holdings), into equity, increasing the parent company’s stake from 73.27 per cent to 82.79 per cent.

According to the company’s statement, the outstanding loan equivalent to N51.8 billion will be converted at N23.6 per share an 18 per cent discount to the current market price.

This transaction will result in the issuance of 2.19 billion new ordinary shares of 50 kobo each, raising PZ Cussons Nigeria’s share capital from N1.99 billion to N3.08 billion.