Investors are asking themselves whether Nigerian Export-Import Bank (NEXIM) financial lifeline of N5 billion to Multi Trex Plc will resurrect the Cocoa processing firm from the dead.
This is not a rhetorical question as readers are allowed to given an answer after reading this short article.
For those that believe in miracles, the only story of a resurrection as told by the book of Matthew was when Jesus Christ resurrected a certain man called Lazarus.
But in the corporate world spiritualism isn’t the antidote for a company at the brink of collapse but money or capital injection could be a solution depending on the level on how the funds are strategically utilized.
Let get straight to the game of numbers and leave Theology to philosophers and pastors.
Multi Trex is sick, and to start with the company is grappling with huge debt and its gearing ratios are stratospheric, which exposes it to bankruptcy.
In the financial parlance, gearing ratios measure the level of indebtedness of a firm. It shows the level of debt in the capital structure while a high ratio means the company is highly indebted.
The Cocoa processing firm has a total debt of N11.55 billion as at December 2013, the last time it posted its financial statement on the website of the Nigerian Stock Exchange (NSE).
Gearing ratios increased to 361.10 percent as at December 2013 as against 174.18 percent the previous year. Finance costs or interest expenses of N1.43 billion are 1 time sales. In other words, interests on bank loans are equal to sales.
In 2013, Skye Bank Plc decided to sell to Asset Management Corporation of Nigeria (AMCOM) N8.50 billion of Multi Trex’s owing to the bank.
That same year, AMCON yielded to the company’s proposal and considered restructuring the loans bought by them.
“Under the loan restructuring exercise, AMCON converted N1.5 billion of the amount of the loans bought to Equity. Also, the Corporation transferred N4.5 billion to Preference Shares while retaining the balance of N2.5 billion as a nine-year Term loan,” said the company in note 5 of its consolidated financial statement.
Multi Trex recorded a loss after tax of N3.02 billion in 2013, which is 2.10 times sales as cost of sales or production costs of N2.30 billion swallowed the whole of revenue.
Sales slumped by 56.13 percent to N1.43 billion in the period under review as the company grappled with low capacity utilization brought on by its inability to access working capital.
The company’s business was severely hampered by its inability to access working capital as a result of a Central Bank directive that, soon after the loan restructuring, prohibited all Deposit Money Banks (DMBs) from extending new credit facilities to all companies who owe an initial debt of N5b or above to AMCON, according to the Multi Trex.