Diageo scraps plan to lift Guinness Nigeria stake in tough market

By Chijioke Ohuocha and Martinne Geller

ABUJA/LONDON, Oct (HKSE: 3366-OL.HK - news) 5 (Reuters) - Diageo (LSE: DGE.L - news) has scrapped plans to lift its stake in Guinness Nigeria due to tough market conditions there, the drinks company said on Wednesday.

The decision by Diageo, maker of Johnnie Walker Scotch and Smirnoff vodka, is the latest blow for the West African (Stuttgart: W25.SG - news) economy, which is headed for its first full-year recession in 25 years following a plunge in oil prices.

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. At last year's exchange rates, that would have been worth about $208 million.

Diageo said on Wednesday it would not proceed with the offer, choosing instead to focus its resources on continuing to support Guinness Nigeria. Last month it gave the unit a $95 million loan to help it cope with dollar shortages.

Limited access to foreign currency has contributed to other businesses pulling back from Nigeria, including airlines Iberia and United.

Yet British company PZ Cussons (LSE: PZC.L - news) said in July liquidity had begun to improve following Nigeria's decision in June to lift the currency peg, which led to a sharp devaluation of the naira.

Guinness Nigeria shares were flat at 93 naira on the Lagos bourse on Wednesday. The shares are down 19 percent this year.

The brewer reported its first full-year loss in 30 years for fiscal 2016, hurt by the ongoing recession in Africa's largest economy and the currency crisis brought on by the impact of low oil prices. Nigeria's economy is likely to contract by 1.3 percent this year, the head of the government's statistics office said on Wednesday.

"Diageo has confirmed that it maintains a positive outlook for Nigeria in the long term and that it expects the market to continue to grow," Guinness Nigeria said in a statement. "Nigeria remains a key strategic market for Diageo."

A source familiar with the company's thinking said a future rights issue could be another potential way for to recapitalise the business.

Diageo is predominantly a spirits company, but says that owning Guinness beer helps its footprint in Africa, where a growing number of middle class consumers are drinking more alcohol. (Reporting by Chijioke Ohuocha and Martinne Geller; Editing by Mark Potter)