Economy
Fitch Downgrades Seven Energy Int’l Ltd to ‘RD’
By Modupe Gbadeyanka
Fitch Ratings has downgraded Nigeria-based Seven Energy International Limited’s Issuer Default Rating to ‘RD’ from ‘C’ following the announcement of the results of the consent solicitation for the 10.25 percent $300m senior secured notes due 2021: 95.31 percent of the noteholders voted in favour of the proposal. Simultaneously, Fitch has affirmed the senior secured rating of wholly owned subsidiary Seven Energy Finance Limited’s $300m notes at ‘C’ with a ‘RR6’ Recovery Rating.
The accepted proposal qualifies as a distressed debt exchange under Fitch’s criteria as it imposes a material reduction in terms compared with the original ones and is conducted to avoid a payment default. Under the new terms, Seven Energy may choose to pay interest on the notes in kind, ie by increasing the principal amount of the outstanding notes or by issuing additional notes for up to four coupon payments between 11 October 2016 and 11 April 2018.
Seven Energy remains under severe liquidity pressure due to a combination of factors including: the fall in oil prices, a limited ability to convert naira into dollars, and the prolonged Forcados export pipeline closure, which has resulted in no oil lifting since February 2016. In addition to the notes consent solicitation, the company has recently agreed with the Accugas IV facility bank lenders to defer the amortisation schedule for debt payments into 2018. It is also working on a new facility with Nigerian and international banks and development finance institutions for longer-term credit facilities. Therefore the ‘RD’ rating is likely to remain until we have more clarity on Seven Energy’s post-deal liquidity and financial structure.
KEY RATING DRIVERS
Developing Natural Gas Business
Seven Energy’s management views the natural gas business in Nigeria’s southeast as an important growth driver for the company. In 9M16, Seven Energy’s average deliveries of natural gas reached 80 million cubic feet per day (MMcfpd), up from 64MMcfpd in 9M15. Its gas offtakers include three power stations (Alaoji, Calabar and Ibom), the Unicem cement plant and a fertiliser factory. In November 2016, Seven Energy completed the 69km Uquo-Creek Town pipeline to supply gas to Calabar and Unicem and signed a USD112m partial risk guarantee with Nigeria’s federal government for gas supply to Calabar and other customers.
The company is now on track to ramp up gas sales to 150MMcfpd and beyond. The installation of electricity distribution infrastructure to allow the power stations to run at full capacity has now been completed and Calabar is able to generate additional electricity.
The natural gas assets are fully ring-fenced and serve as security for the Accugas IV loan. There is a risk that the lenders may decide to enforce the security, stripping the company of its main cash generating asset and effectively forcing it into liquidation.
Strategic Alliance Agreement Halted
All Seven Energy’s oil liftings from OML 4, 38 and 41 under the strategic alliance agreement with the state-owned NPDC have been stopped since February 2016, as the Forcados oil terminal remains shut due to the rise in militant attacks. Management gives no estimate on when Forcados will be restarted and we understand is considering alternative means to export crude.
Naira Convertibility Issues
Seven Energy’s natural gas revenues are US dollar pegged but are received in naira. We understand from management that there are difficulties in Nigeria regarding exchanging naira into US dollars, which are needed to service the compay’s US dollar debt at the official exchange rate. This negatively affects the company’s liquidity as long as Forcados remains shut, meaning that the company receives no US dollar revenue under the strategic alliance agreement.
KEY ASSUMPTIONS
– Brent oil price deck of USD44/bbl in 2016, USD45/bbl in 2017, USD55/bbl 2018.
– SAA’s FCF negative in 2016; turning positive in 2017-2018.
– Natural gas sales volumes ramping up to 150MMcfpd a year in 2017 and 2018.
– Proposed restructuring implemented.
RATING SENSITIVITIES
Future Developments That May, Individually or Collectively, Lead to Positive Rating Action
– The ‘RD’ rating will be reviewed following the financial restructuring once sufficient information is available to reflect the appropriate IDR for the issuer’s post-exchange capital structure, risk profile and prospects in accordance with relevant criteria.
Future Developments That May, Individually or Collectively, Lead to Negative Rating Action
– Bankruptcy filings, administration, receivership, liquidation or other formal winding-up procedure affecting Seven Energy would result in a downgrade to ‘D’.
LIQUIDITY
Limited Liquidity
At 30 September 2016, Seven Energy’s cash on hand was USD24m, well short of the USD396m in short-term debt at this date; this amount is prior to ongoing debt renegotiations. In 9M16, Seven Energy used up nearly USD92m in cash due to high capex and interest payments, before new equity raising and debt refinancing. We understand the company is negotiating to increase the limit of its existing working-capital facility.
By Adedapo Adesanya
Food Concepts Plc neutralized the gains recorded by three securities, returning the NASD Over-the-Counter (OTC) Securities Exchange into the negative territory with a 0.27 per cent loss on Thursday, December 4.
Yesterday, the share price of the parent company of Chicken Republic and PieXpress declined by 34 Kobo to sell at N3.15 per unit compared with the previous day’s N3.49 per unit.
This shrank the market capitalisation of the OTC bourse by N5.72 billion to N2.136 billion from N2.142 trillion and weakened the NASD Unlisted Security Index (NSI) by 9.57 points to 3,571.53 points from 3,581.10 points.
Business Post reports that Central Securities Clearing System (CSCS) Plc went down by 50 Kobo to N38.50 per share from N38.00 per share, FrieslandCampina Wamco Nigeria Plc gained 29 Kobo to sell at N55.79 per unit versus N55.50 per unit, and Geo-Fluids Plc added 5 Kobo to close at N4.60 per share compared with Wednesday’s closing price of N4.55 per share.
Trading data indicated that the volume of securities recorded at the session surged by 6,885.3 per cent to 4.3 million units from the 61,570 units posted a day earlier, the value of securities increased by 10,301.7 per cent to N947.2 million from N3.3 million, and the number of deals went up by 146.7 per cent to 37 deals from the 15 deals achieved in the previous trading session.
At the close of business, Infrastructure Credit Guarantee Company (InfraCredit) Plc was the most traded stock by value on a year-to-date basis with the sale of 5.8 billion units for N16.4 billion, trailed by Okitipupa Plc with 170.4 million units worth N8.0 billion, and Air Liquide Plc with 507.5 million units valued at N4.2 billion.
InfraCredit Plc also finished the session as the most traded stock by volume on a year-to-date basis with 5.8 billion units transacted for N16.4 billion, followed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.2 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Dipo Olowookere
The upward trend witnessed at the Nigerian Exchange (NGX) Limited in recent sessions continued on Thursday as it further improved by 0.10 per cent.
This was despite investor sentiment turning bearish after the local equity market ended with 23 price gainers and 28 price gainers, indicating a negative market breadth index.
UAC Nigeria gained 10.00 per cent to finish at N88.00, Morison Industries appreciated by 9.94 per cent to N3.54, Ecobank rose by 8.53 per cent to N36.90, and Coronation Insurance grew by 8.47 per cent to N2.56.
On the flip side, Ellah Lakes depreciated by 10.00 per cent to N13.14, Eunisell Nigeria also shed 10.00 per cent to finish at N72.90, Transcorp Hotels slipped by 9.95 per cent to N157.50, Omatek shrank by 9.23 per cent to N1.18, and Guinea Insurance dipped by 8.46 per cent to N1.19.
Yesterday, the All-Share Index (ASI) went up by 152.28 points to 145,476.15 points from 145,323.87 points and the market capitalisation chalked up N97 billion to finish at N92.726 trillion compared with the previous day’s N92.629 trillion.
Customs Street was bubbling with activities on Thursday, though the trading volume and value slightly went down, according to data.
A total of 1.9 billion stocks worth N19.2 billion exchanged hands in 23,369 deals during the session versus the N2.3 billion valued at N21.0 billion traded in 21,513 deals a day earlier.
This showed that the number of deals increased by 8.63 per cent, the volume of transactions depleted by 17.39 per cent, and the value of trades decreased by 8.57 per cent.
For another trading day, eTranzact led the activity chart with 1.6 billion units sold for N6.4 billion, Fidelity Bank traded 31.0 million units worth N589.3 million, GTCO exchanged 28.3 million units valued at N2.5 billion, Zenith Bank transacted 27.1 million units for N1.6 billion, and Ecobank traded 21.9 million units worth N744.3 million.
By Adedapo Adesanya
The Naira marginally depreciated against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEM) on Thursday, December 4 amid renewed forex pressure associated with December.
At the official market yesterday, the Nigerian currency lost 0.01 per cent or 18 Kobo against the Dollar to close at N1,447.83/$1 compared with the previous day’s N1,447.65/$1.
It was not a different scenario with the local currency in the same market segment against the Pound Sterling as it further shed N15.43 to sell for N1,930.97/£1 versus Wednesday’s closing price of N1,925.08/£1 and declined against the Euro by 20 Kobo to finish at N1,688.74/€1 compared with the preceding session’s N1,688.54/€1.
Similarly, the Nigerian Naira lost N5 against the greenback in the black market to quote at N1,465/$1 compared with the previous day’s value of N1,460/$1 but closed flat against the Dollar at the GTBank FX counter at N1,453/$1.
Fluctuations in trading range is expected to continue during the festive season as traders expect the Nigerian currency to be stable, supported by intervention s by to the Central Bank of Nigeria (CBN)in the face of steady dollar demand.
Support is also expected in coming weeks as seasonal activities, particularly the stylised “Detty December” festivities, will see inflows that will give the Naira a boost after it depreciated mildly last month, according to a new report.
“As the festive Detty December season intensifies, inbound travel, tourism spending, and diaspora inflows are expected to provide moderate support for FX liquidity,” analysts at the research unit of FMDA said in its latest monthly report for November.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450 next week, buoyed by improved FX interventions by the apex bank.
Meanwhile, the crypto market was down as the US Federal Reserve’s preferred inflation gauge, core PCE, likely rose in September—moving in the wrong direction. However, volatility indices show no signs of major turbulence.
If the actual figure matches estimates, it would mark 55 straight months of inflation above the US central bank’s 2 per cent target. The sticky inflation would strengthen the hawkish policymakers, who are in favour of slower rate cuts.
Ripple (XRP) depreciated by 4.5 per cent to $2.08, Solana (SOL) went down by 3.8 per cent to $138.11, Litecoin (LTC) shrank by 3.1 per cent to $83.23, Dogecoin (DOGE) slid by 2.5 per cent to $0.1463, Cardano (ADA) declined by 2.1 per cent to $0.4368, Bitcoin (BTC) fell by 0.9 per cent to $91,975.45, Binance Coin (BNB) crumbled by 0.9 per cent to $899.41, and Ethereum (ETH) dropped by 0.7 per cent to $3,156.44, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) closed flat at $1.00 apiece.
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