Apart from grappling with high cost of distribution due to poor infrastructure, multinational firms operating in the country with foreign investors as majority shareholders, also spend significant part of revenue to pay charges on high cost of funds they borrow locally from banks. This has always affected their level of profitability.
Some market capital operators and investors, who spoke to THISDAY, have said the parent firms of such companies should render financial support to the companies so as to take the burden of high financing costs off them.
A stockbroker, who spoke on the condition of anonymity, said given the level of infrastructural development in the country, the only way the parent firm can help their subsidiaries and boost their profitability is to support them with cheaper funds.
“Given the rates banks charge in Nigeria now, it will be tough for a companies to operate optimally without support from their foreign investors. There are avenues in the international market to get cheap funds and the parent companies which are known internationally have the advantage of even getting cheaper funding,” the broker said.
According to him, when the local firms get those funds, it will go a long in enhancing their profitability level.
Speaking in the same vein, a shareholder activist, Dr. Faruk Umar noted that foreign companies should see it as point of duty to support their local investments through equity injection or borrowing from cheaper international sources.
“When the companies are making profits, the foreign majority shareholders take larger share because of their large holdings. And I believe that when the companies need cheaper funding to perform better, the parent bodies should be there to support them. They can also do that through right issues which I believe local investors will also support,” Umar said.
THISDAY checks showed Unilever Nigeria Plc, Total Nigeria Plc, Nestle Nigeria Plc, Glaxosmithkline Consumer Nigeria Plc, among others, which have not made a share issue for a very long, witnessed significant rise in financing costs in 2013.
For instance, financing cost of Unilever rose 39 per cent from N816 million in 2012 to N1.13 billion in 2013. GSK’s financing cost soared by 240 per cent from N151 million in 2012 to N514 million in 2013, while that of Total Nigeria rose 26 per cent from N1.572 billion to N1.981 billion.
– This Day