Neimeth restructures reserves as drugmakers abandon costly debt model

Neimeth International Pharmaceuticals Plc is reorganising nearly N2 billion in reserves under a court-backed scheme, emphasising a deeper shift across Nigeria’s pharmaceutical industry as companies move away from an increasingly unsustainable reliance on short-term bank borrowing.

Shareholders approved the scheme of arrangement at a court-ordered meeting on March 31, clearing the way for the company to reduce its share premium from N2.38 billion to N390.02 million and transfer the N1.99 billion balance into retained earnings. The restructuring, which is subject to final approval by regulators and the court, is expected to strengthen distributable reserves, absorb accumulated losses, and improve the company’s financial flexibility without raising fresh capital.

The board has also been authorised to implement the scheme and accept any modifications required by regulators, including the Securities and Exchange Commission (SEC) and the court. While technical, the move reflects a broader recalibration of balance sheets across the sector as access to affordable financing tightens.

High borrowing costs force a reset

Nigeria’s pharmaceutical companies have long depended on short-term bank loans to fund working capital, procurement, and expansion. That model is now under strain as borrowing costs climb to levels that are difficult to sustain.

The Central Bank of Nigeria has kept its benchmark Monetary Policy Rate at 26.5 percent, with commercial lending rates for manufacturers often exceeding 30 percent. For pharmaceutical firms, where production cycles are long and margins are sensitive to cost swings, this has fundamentally altered the economics of borrowing.

“Loans with interest rates as high as 33 percent make it nearly impossible for manufacturers to break even, especially in a capital-intensive industry like API production,” said Patrick Ajah, managing director of May & Baker Nigeria Plc.

At such levels, debt ceases to function as a tool for growth and instead becomes a drag on operations. Companies are committing a growing share of their cash flow to servicing loans, leaving less available for production, procurement, and expansion. What was once a flexible source of funding has become a constraint on growth.

Import dependence deepens pressure

The cost of borrowing is only one side of the challenge. The structure of Nigeria’s pharmaceutical industry is amplifying the strain.

More than 70 percent of raw materials used by local manufacturers are imported, exposing companies to foreign exchange volatility. The cost of active pharmaceutical ingredients and other inputs has risen sharply, increasing the amount of working capital required to maintain production levels.

Recent global supply disruptions have compounded the problem. Industry operators say prices of key inputs such as paracetamol have surged within short periods due to supply shocks and geopolitical tensions. For local manufacturers, this translates into higher operating costs at a time when financing those costs is becoming more expensive.

The result is a tightening squeeze on liquidity. Companies are paying more to procure inputs and more to service debt, creating a persistent mismatch between operating needs and available cash. In this environment, maintaining the status quo is no longer viable.

Restructuring becomes unavoidable

Companies are increasingly adjusting how they finance their operations to reduce pressure on cash flow and restore financial stability.

Restructuring can take several forms, including extending the tenor of existing loans, renegotiating interest rates, converting short-term obligations into longer-term debt, or raising equity to replace expensive borrowing. The objective is to create breathing room for operations while positioning for future growth.

Some firms have already taken decisive steps. Fidson Healthcare Plc raised about N21 billion through a rights issue in early 2026, strengthening its capital base and reducing reliance on short-term bank loans.

“The successful formalisation of this N21 billion rights issue marks a critical milestone for Fidson,” said Biola Adebayo. “This capital will support our growth and strengthen our position in the market.”

Neimeth is pursuing a more layered strategy that combines internal restructuring with debt adjustments and plans for fresh capital. After returning to profitability in 2025, the company has moved to extend the tenor of its loans and reduce financing costs as it scales operations.

“We were able to restructure the loans over a longer period, which gives the business more room to operate,” said Valentine Okelu.

The reserve reclassification is part of that broader effort. By strengthening retained earnings, the company improves its balance sheet and positions itself for potential capital raising, while also creating flexibility to manage working capital more effectively.

Industry shift gathers momentum

The pressures driving Neimeth’s strategy are not unique. Other listed players such as Mecure Industries Plc and May & Baker Nigeria Plc face similar constraints, even if they have yet to announce formal restructuring programmes.

At the same time, changes in the competitive landscape are accelerating the shift. The exit of multinational drugmakers such as GlaxoSmithKline and Sanofi has created supply gaps in the Nigerian market, increasing pressure on local manufacturers to expand production and capture market share.

Filling those gaps requires significant investment in manufacturing capacity, regulatory compliance and distribution networks. These are long-term commitments that cannot be easily financed with short-term, high-interest loans. The mismatch between funding structure and operational needs is forcing companies to rethink how they raise and deploy capital.

Equity financing is emerging as a more viable alternative despite the risk of dilution. Unlike debt, it does not carry immediate repayment obligations, allowing firms to invest in expansion and absorb short-term shocks without the burden of high interest payments.

Policy direction is also reinforcing this transition. Government efforts to boost local pharmaceutical production, including tax exemptions on hundreds of raw materials, are encouraging firms to invest in domestic capacity and reduce reliance on imports. These investments typically involve long gestation periods, further reducing the appeal of short-term borrowing.

Neimeth’s latest move illustrates how companies are adapting to a more demanding operating environment. What appears to be a technical adjustment is, in reality, part of a broader financial reset across the pharmaceutical industry. As borrowing costs remain elevated and input pressures persist, the shift away from debt-driven growth is likely to accelerate, reshaping how the sector finances its future.