The decline of the Nigerian naira has emerged as an unexpected lifeline for many loss-making firms in Africa’s largest economy.

At an event co-organised by BusinessDay and Diya Fatimilehin & Co on Thursday, financial analysts highlighted that the current naira situation can provide a buffer for struggling companies, allowing them to revalue their assets and potentially return to a positive net position.

Jamiu Olakisan, partner and assurance leader at EY, explained that the devaluation offers a unique rebound opportunity for firms’ assets.

“It has led to several companies looking at options for valuation of the assets that they carry in their financial statements,” Olakisan stated at the event titled, ‘Decoding Valuation Standards: Implications for Financial Reporting and Investments,’ held in Lagos.

Financial Relief Through Asset Revaluation

The significant devaluation of the naira has resulted in many firms recording materially higher net forex losses, which has led to significant losses after tax.

Ten consumer goods firms in Nigeria, for instance, incurred a combined foreign exchange loss of N987.7 billion in 2023 due to the naira’s devaluation, a stark increase from the previous year’s N129.8 billion.

Olakisan explained that the devaluation provides companies with the opportunity to revalue their fixed assets, such as property, plant, and equipment, which can significantly alter their financial standing.

“When the revaluation method gives you a gain, it doesn’t go to the income statement but to the comprehensive statement and the revaluation reserve, boosting shareholders’ funds,” he noted.

Methods of Asset Valuation

There are two primary methods used in the valuation of assets: the cost approach method and the revaluation method.

The cost approach considers the market price changes of fixed assets, while the revaluation method involves adjusting the carrying value of an asset to reflect its fair market value.

Companies switching to the revaluation method must disclose this change to investors and frequently update their valuations, typically every three to five years.

Case Study: Nestle Nigeria

Nestle Nigeria serves as a prominent example of this strategy. The company’s board of directors recently approved a shift from the historical cost methodology to the revaluation methodology for valuing its Property, Plants, and Equipment (PP&E).

This change resulted in a revaluation reserve of N150.04 billion, increasing the company’s PP&E value to N389.17 billion in the first quarter of 2024, up from N165.38 billion in 2023.

This move has prompted CardinalStone Securities, an investment bank, to project that Nestle’s shareholders’ fund will significantly improve to a negative balance of N10.94 billion by the end of 2024, compared to a negative N78.04 billion in 2023.

Industry Outlook

Gboyega Fatimilehin, founding partner of Diya Fatimilehin & Co, stated the importance of credible valuation reporting, especially as Nigeria aims to become a $1 trillion economy by 2030.

“The seminar is timely, given the inflationary trends and macroeconomic challenges facing the country’s economy, providing a better understanding of valuation standards,” he said.

Rabiu Olowo, CEO of the Financial Reporting Council, represented by Ugochukwu Obu Nwora, highlighted that new valuation regulations would be introduced soon.

“We’re hopeful that by the end of August, a first-of-its-kind valuation regulation will be out,” he stated.

In a fireside session, Chris Thorne, director of Valuology, reiterated the importance of valuation in giving businesses insights into key decision-making, stressing its essential role in financial stability.

He noted that there are no universally best valuation methods, as valuers must understand their market dynamics and consider the associated risks.

As Nigeria navigates its economic challenges, the devaluation of the naira, though initially a setback, has opened doors for struggling companies to stabilize and potentially thrive through strategic asset revaluation.

In a move set to bolster infrastructure development across Lagos State, FirstBank of Nigeria Limited has expressed its commitment to partnering with the state government.

This collaboration aims to drive key projects that will enhance power infrastructure, create employment opportunities, and boost economic growth.

The commitment was made by the Managing Director and Chief Executive Officer of FirstBank, Olusegun Alebiosu, during a courtesy visit to the Lagos State Governor, Babajide Sanwo-Olu, on Tuesday.

Alebiosu, who was recently confirmed as the substantive MD/CEO of FirstBank in late June, led a management team to the Governor’s office to discuss the potential partnership.

“Power infrastructure is crucial, especially because Lagos State is a model for other states in Nigeria,” Alebiosu remarked. “We are keen to see the framework that the Lagos State Government will establish, alongside various private investors, to launch significant power projects aimed at reducing production costs. FirstBank is committed to supporting these initiatives to ensure Lagos State reaps the benefits, including increased employment opportunities and enhanced tax revenue generation.”

Alebiosu highlighted several special projects already underway by the Lagos State Government and emphasized FirstBank’s dedication to continuing its support.

He expressed optimism that these projects would not only benefit Lagos but also contribute to the broader Nigerian economy.

In response, Governor Sanwo-Olu expressed his appreciation for FirstBank’s longstanding partnership with the state.

He reaffirmed his administration’s commitment to maintaining mutually beneficial relationships with financial institutions, particularly FirstBank.

“We have a special space for FirstBank because of our historically productive relationship,” Sanwo-Olu said.

“Over the years, our banking relationship with FirstBank has created significant economic value and movement. We will continue to nurture this relationship by giving the bank its rightful place and ensuring that FirstBank receives a substantial portion of our business.”

The Governor underscored the importance of such partnerships in meeting the needs and aspirations of Lagos residents.

He highlighted that sustained collaboration with FirstBank would be pivotal in achieving the state’s infrastructure and economic goals.

The discussions between the FirstBank team and the Lagos State Government come at a time when the state is focusing on extensive infrastructure projects to support its growing population and economic activities.

The partnership with FirstBank is expected to accelerate the completion of these projects, particularly in the power sector, which is critical for industrial growth and overall development.

As FirstBank and Lagos State forge ahead with this new partnership, both parties are optimistic about the positive impact it will have on the state’s infrastructure landscape and its residents’ quality of life.

This collaboration marks a significant step towards a more robust and sustainable economic future for Lagos State.

Access Holdings Plc is set to open its highly anticipated N350 billion rights issue to existing shareholders on Monday, July 8, 2024.

The strategic move was announced during a signing ceremony held at the corporate head office in Lagos on Tuesday, and it marks a significant milestone in the company’s ambitious growth plan.

At the ceremony, the Group Managing Director of Access Holdings, Mrs. Bolaji Agbeje, explained the importance of this rights issue for the company’s future.

“Our success is rooted in our resolute dedication to excellence, our strategic vision, market research, resilience, and ability to adapt to the ever-evolving financial landscape,” she stated.

“This rights issue will create real value for all and position the group for sustained growth for the future.”

The rights issue, priced at N19.75 per share, is offered on the basis of one new share for every two shares held as of June 7, 2024.

With 17,772,612,811 new ordinary shares available, Access Holdings aims to raise significant capital to support its strategic objectives outlined in the 2023-2027 plan.

Mrs. Agbeje emphasized the crucial role of shareholders in realizing the company’s vision.

She said “Indeed, the realisation of this vision requires the full backing of our valued shareholders. It is your support that ensures we optimize the emerging opportunities in the ecosystem and create long-term value.”

The funds raised will be instrumental in meeting the new N500 billion capital base mandated for top commercial banks in Nigeria, as per the Central Bank of Nigeria’s circular issued in April 2024. The deadline for recapitalization is set for March 31, 2026.

Mr. Aigboje Aig-Imoukhuede, Chairman of Access Holdings, said “This is the second rights issue by Access Corporation, the first being in 2002. Today, we are here for another significant corporate action in the life of the Access ecosystem. This is the first time we are bringing to the market an Access Bank financial instrument without Herbert being present, but his spirit and vision are very much a part of this offer.”

Aig-Imoukhuede noted that the capital raising steps were planned independently of the Central Bank’s announcement.

This, he said ” speaks to our strategic intent and enables early compliance with the Central Bank’s overall recapitalization of our sector. The proceeds will support our ambition to fly the Access Bank flag across Africa and beyond.”

Roosevelt Ogbonna, Managing Director of Access Bank, said “Every time we have been put to that test, we have passed in flying colours. The truth is that it is an opportunity for us to bind together as a board and, more importantly, as a stakeholder group.”

The funds raised will not only bolster the bank’s core operations but also support its non-banking ventures in pension and fintech sectors, reinforcing Access Holdings’ position as a leading financial services group in Africa.