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 Aduragbemi Omiyale
The ban on the export of raw shea nuts from Nigeria has been extended by one year by President Bola Tinubu.
A statement from the Special Adviser to the President on Information and Strategy, Mr Bayo Onanuga, on Wednesday disclosed that the ban is now till February 25, 2027.
It was emphasised that this decision underscores the administration’s commitment to advancing industrial development, strengthening domestic value addition, and supporting the objectives of the Renewed Hope Agenda.
The ban aims to deepen processing capacity within Nigeria, enhance livelihoods in shea-producing communities, and promote the growth of Nigerian exports anchored on value-added products, the statement noted.
To further these objectives, President Tinubu has authorised the two Ministers of the Federal Ministry of Industry, Trade and Investment, and the Presidential Food Security Coordination Unit (PFSCU), to coordinate the implementation of a unified, evidence-based national framework that aligns industrialisation, trade, and investment priorities across the shea nut value chain.
He also approved the adoption of an export framework established by the Nigerian Commodity Exchange (NCX) and the withdrawal of all waivers allowing the direct export of raw shea nuts.
The President directed that any excess supply of raw shea nuts should be exported exclusively through the NCX framework, in accordance with the approved guidelines.
Additionally, he directed the Federal Ministry of Finance to provide access to a dedicated NESS Support Window to enable the Federal Ministry of Industry, Trade and Investment to pilot a Livelihood Finance Mechanism to strengthen production and processing capacity.
Shea nuts, the oil-rich fruits from the shea tree common in the Savanna belt of Nigeria, are the raw material for shea butter, renowned for its moisturising, anti-inflammatory, and antioxidant properties. The extracted butter is a principal ingredient in cosmetics for skin and hair, as well as in edible cooking oil. The Federal Government encourages processing shea nuts into butter locally, as butter fetches between 10 and 20 times the price of the raw nuts.
The federal government said it remains committed to policies that promote inclusive growth, local manufacturing and position Nigeria as a competitive participant in global agricultural value chains.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange expanded for the first session this week by 1.27 per cent on Wednesday, February 25.
This lifted the NASD Unlisted Security Index (NSI) above 4,000 points, with a 50.45-point addition to close at 4,025.25 points compared with the previous day’s 3,974.80 points, as the market capitalisation added N30.19 billion to close at N2.408 trillion versus Tuesday’s N2.378 trillion.
At the trading session, FrieslandCampina Wamco Nigeria Plc grew by N5.00 to trade at N100.00 per share compared with the previous day’s N95.00 per share, Central Securities Clearing System (CSCS) Plc improved by N4.18 to sell at N70.00 per unit versus N65.82 per unit, and First Trust Mortgage Bank Plc increased by 14 Kobo to trade at N1.59 per share compared with the previous day’s N1.45 per share.
However, the share price of Geo-Fluids Plc depreciated by 27 Kobo at midweek to close at N3.27 per unit, in contrast to the N3.30 per unit it was transacted a day earlier.
At the midweek session, the volume of securities went down by 25.3 per cent to 8.7 million units from 11.6 million units, the value of securities decreased by 92.5 per cent to N80.7 million from N1.2 billion, and the number of deals slipped by 33.3 per cent to 32 deals from the preceding session’s 48 deals.
At the close of business, CSCS Plc remained the most traded stock by value on a year-to-date basis with 34.1 million units exchanged for N2.0 billion, trailed by Okitipupa Plc with 6.3 million units traded for N1.1 billion, and Geo-Fluids Plc with 122.0 million units valued at N478.0 million.
Resourcery Plc ended the trading session as the most traded stock by volume on a year-to-date basis with 1.05 billion units valued at N408.7 million, followed by Geo-Fluids Plc with 122.0 million units sold for N478.0 million, and CSCS Plc with 34.1 million units worth N2.0 billion.
By Dipo Olowookere
The bears consolidated their dominance on the Nigerian Exchange (NGX) Limited on Wednesday, inflicting an additional 0.09 per cent cut on the market.
At midweek, the market capitalisation of the domestic stock exchange went down by N73 billion to N124.754 trillion from the preceding day’s N124.827 trillion, and the All-Share Index (ASI) slipped by 114.32 points to 194,370.20 points from 194,484.52 points.
A look at the sectoral performance showed that only the consumer goods index closed in green, gaining 1.19 per cent due to buying pressure.
However, sustained profit-taking weakened the insurance space by 3.79 per cent, the banking index slumped by 2.07 per cent, the energy counter went down by 0.24 per cent, and the industrial goods sector shrank by 0.22 per cent.
Business Post reports that 25 equities ended on the gainers’ chart, and 54 equities finished on the losers’ table, representing a negative market breadth index and weak investor sentiment.
RT Briscoe lost 10.00 per cent to sell for N10.35, ABC Transport crashed by 10.00 per cent to N6.75, SAHCO depreciated by 9.98 per cent to N139.35, Haldane McCall gave up 9.93 per cent to trade at N3.99, and Vitafoam Nigeria decreased by 9.93 per cent to N112.50.
Conversely, Jaiz Bank gained 9.95 per cent to settle at N14.03, Okomu Oil appreciated by 9.93 per cent to N1,765.00, Trans-nationwide Express chalked up 9.77 per cent to close at N2.36, Fortis Global Insurance moved up by 9.72 per cent to 79 Kobo, and Champion Breweries rose by 5.39 per cent to N17.60.
Yesterday, 1.4 billion shares worth N46.2 billion were transacted in 70,222 deals compared with the 1.1 billion shares valued at N53.4 billion traded in 72,218 deals a day earlier, implying a rise in the trading volume by 27.27 per cent, and a decline in the trading value and number of deals by 13.48 per cent and 2.76 per cent, respectively.
Fortis Global Insurance ended the session as the busiest stock after trading 193.7 million units for N152.7 million, Zenith Bank transacted 120.7 million units worth N11.1 billion, Japaul exchanged 114.8 million units valued at N407.0 million, Ellah Lakes sold 98.4 million units worth N999.2 million, and Access Holdings traded 63.1 million units valued at N1.7 billion.
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