Diageo’s $75 million (N22.50 billion) loan to subsidiary company Guinness Nigeria will help partly solve the Nigerian brewer’s dollar challenges in an economy grappling with its worst recession in 25 years.
The decision by Diageo, maker of Johnnie Walker Scotch and Smirnoff vodka, shows it is confident in a Nigerian segment it believes is the frontier growth for Africa.
Guinness has been having challenges with sourcing foreign currency it needs to bring in raw materials and other imports.
For a company that reported its first loss in 30 years, a $75 million (N22.50 billion) loan to meet FX will remove the bottle neck in production and therefore help bolster top lines.
Guinness Nigeria shares were up 0.04 percent to N80 on the Lagos bourse on Friday.
The shares are down 19 percent this year.
The Nigerian central bank pegged the currency at N197-N199 while banning importers of 41 items from its currency window, a policy that stoked inflation and sent the country into its worst recession in 25 years.
IMF forecasts that the GDP will shrink by a further 1.80 percent by the end of 2016.
Diageo last year said it planned to buy another 15.7 percent of Guinness Nigeria for up to 41.37 billion naira, raising its stake to 70 percent.
Diageo said on its website in October 5 that it would not proceed with the offer, choosing instead to focus its resources on continuing to support Guinness Nigeria.
The rationale was to benefit from the fast growth consumer market that emerging and frontier economies are expected to have with Nigeria as a strong fulcrum for sub-Sahara Africa, according to Pabina Yinkere, Head of Research at Vetiva Capital Management Limited in a recent note to BusinessDay.
“For example, the spirits business (in which Diageo is a global leader) has strong headroom for growth in Nigeria and Africa. So to capture this growth using Guinness Nigeria as a vehicle, it may be beneficial to have even more stake in the Nigeria subsidiary,” said Yinkere.
Sources close to Diageo say a right issue may be another way the international brewer my use in recapitalize Guinness Nigeria’s balance sheet.