Economy
Fitch Drops Seven Energy to ‘RD’
By Modupe Gbadeyanka
The Long-Term Issuer Default Rating of Nigeria-based Seven Energy International Limited has been downgraded to ‘RD’ from ‘C’ by Fitch Ratings.
This followed Seven Energy’s announcement that the 30-day grace period has expired for the cash interest payment the firm missed on its $300 million secured notes and $100 million notes due 2021.
It was gathered that the company could not meet the conditions for the interest capitalisation.
The expiration of the grace period was an event of default under the notes’ terms.
However, Seven Energy is holding talks with its creditors to agree a standstill on its debt service obligations.
The company is also discussing a comprehensive financial restructuring with its existing and potential lenders and investors.
According to Fitch, it simultaneously affirmed the wholly owned subsidiary Seven Energy Finance Limited’s $300 million 10.25 percent senior secured notes due 2021 at ‘C’ with an ‘RR6’ Recovery Rating.
All Seven Energy’s oil liftings from oil mining licences (OMLs) 4, 38 and 41 under the strategic alliance agreement (SAA) with the state-owned Nigerian Petroleum Development Company Limited (NPDC) have stopped since February 2016, as the Forcados oil pipeline and terminal remain shut due to the threat of militant attacks.
Earlier in 2017, Seven Energy announced that NPDC intends to terminate the SAA unless the company meets outstanding cash calls. Seven Energy has taken steps to preserve its contractual rights under the SAA, but there is a risk that this once key cash-generating asset will remain largely unavailable.
Near-term cash flows from the company’s gas business remain weak as sale volumes are volatile and the company’s major gas off-takers, Nigerian state-owned power stations, delay payments for consumed gas.
In April 2017, Seven Energy reported delays in finalisation and effectiveness of the World Bank partial risk guarantee (PRG), which is meant to compensate Seven Energy for up to $112 million of gas supply invoices to Calabar power station, its principal gas off-taker.
The company currently expects the PRG to be finalised soon, after approval from the Nigerian authorities is obtained and the PRG could be called 90 days after its finalisation. Finalisation of the PRG would be positive, but we do not expect it to materially improve the overall payment discipline for Seven Energy’s gas business.
Longer term, the natural gas business in Nigeria’s southeast is an important growth driver for Seven Energy, which is on track to ramp up gas sales to over 150 million cubic feet per day.
Following the completion of the power grid, local power stations including Calabar can now run at full capacity. On the other hand, power stations continue suffering from stretched liquidity and poor receivables collection, and are delaying their payments to the company.
Seven Energy’s midstream gas infrastructure assets are fully ring-fenced and serve as security for the company’s $385 million Accugas loan.
There is a risk that the Accugas lenders may decide to enforce the security on the gas assets, stripping the company of its presently main cash-generating asset and effectively forcing it into liquidation.
Seven Energy’s natural gas revenues are US-dollar pegged but are received in Naira. Nigerian companies, including Seven Energy, are facing difficulties exchanging Naira into US Dollars, which the company needs to service its US-dollar debt, at the official exchange rate.
To alleviate the problem, the company is currently negotiating with lenders to convert the Accugas facility into naira and extend its maturity. The naira convertibility issue negatively affects the company’s liquidity as long as Forcados remains shut, as the company receives little US dollar revenue from its other operations.
By Adedapo Adesanya
Energy stocks influenced the 4.76 per cent loss recorded by the NASD Over-the-Counter (OTC) Securities Exchange on Friday, December 5.
The culprits were the duo of 11 Plc and Nipco Plc,with the former shedding N32.17 to end at N291.83 per share compared with the previous day’s N324.00 per share, and the latter down by N21.00 to sell at N195.00 per unit versus the previous session’s N216.00 per unit.
Consequently, the NASD Unlisted Security Index (NSI) slumped by 170.16 points to 3,401.37 points from 3,571.53 points and the market capitalisation lost N101.81 billion to close at N2.035 billion from the N2.136 trillion quoted in the preceding session.
The OTC securities exchange suffered the decline yesterday despite the share prices of three companies closing green.
Central Securities Clearing System (CSCS) Plc was up by N1.80 to close at N39.80 per share compared with Thursday’s price of N38.00 per share, Air Liquide Plc appreciated by N1.09 to N11.99 per unit from N10.90 per unit, and FrieslandCampina Wamco Nigeria Plc grew by 78 Kobo to N56.57 per share from N55.79 per share.
During the session, the volume of transactions rose by 6,885.3 per cent to 18.2 million units from 4.3 million units, the value of transactions ballooned by 10,301.7 per cent to N389.7 million from N347.2 million, but the number of deals declined by 29.7 per cent to 26 deals from 37 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc ended the day as the most traded stock by value on a year-to-date basis with 5.8 billion units worth N16.4 billion, followed by Okitipupa Plc with 170.4 million units valued at N8.0 billion, and Air Liquide Plc with 507.5 million units worth N4.2 billion.
InfraCredit Plc also finished the day 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 worth N524.9 million.
By Adedapo Adesanya
The Naira depreciated further against the US Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, December 5, as FX demand pressure mounts.
The Nigerian currency lost N2.60 or 0.18 per cent against the greenback to close at N1,450.43/$1 compared with the previous day’s N1,447.83/$1.
Equally, the domestic currency declined against the Pound Sterling in the official forex market during the session by N4.48 to trade at N1,935.45/£1, in contrast to Thursday’s closing price of N1,930.97/£1 and shrank against the Euro by 43 Kobo to end at N1,689.17/€1 versus the preceding session’s rate of N1,688.74/€1.
Similarly, the local currency performed badly against the US Dollar at the GTBank FX counter by N2 to close at N1,455/$1 versus Thursday’s N1,453/$1 but traded flat at the parallel market at N14.65/$1.
As the country gets into the festive period, pressure mounted on the local currency reflecting higher foreign payments and lower FX inflows.
However, there are expectations that the Nigerian currency will be stable, supported by interventions by to the Central Bank of Nigeria (CBN) in the face of steady dollar Demand and inflows from Detty December festivities that will give the Naira a boost after it depreciated mildly last month.
Traders cited by Reuters expect that the Naira will trade within a band of N1,443-N1,450/$1 next week, buoyed by improved FX interventions by the apex bank.
As for the crypto market, it was down yesterday due to profit-taking associated with year-end trading. However, the December 1-Year Consumer Inflation Expectation by the University of Michigan fell to 4.1 per cent from 4.5 per cent previously and 4.5 per cent expected. The 5-Year Consumer Inflation Expectation fell to 3.2 per cent from 3.4 per cent previously and 3.4 per cent expected.
With the dearth of official economic data of late, these private surveys have taken on a new level of significance and the market banks of them to make decisions.
Cardano (ADA) depreciated by 5.7 per cent to $0.4142, Dogecoin (DOGE) slid by 5.1 per cent to $0.1394, Ethereum (ETH) dropped by 3.9 per cent to $3,039.75, Solana (SOL) declined by 3.8 per cent to $133.24, and Litecoin (LTC) fell by 3.7 per cent to $80.59.
Further, Bitcoin (BTC) went down by 2.6 per cent to sell at $89,683.72, Binance Coin (BNB) slumped by 2.2 per cent to $883.59, and Ripple (XRP) shrank by 2.1 per cent to $2.04, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
By Adedapo Adesanya
The oil market was up on Friday on increasing expectations the US Federal Reserve will cut interest rates next week, which could boost economic growth and energy demand.
Brent futures rose by 49 cents or 0.8 per cent to $63.75 per barrel and the US West Texas Intermediate (WTI) futures expanded by 41 cents or 0.7 per cent to $60.08 per barrel.
Investors digested a US inflation report and recalibrated expectations for the Federal Reserve to reduce rates at its December 9-10 meeting.
US consumer spending increased moderately in September after three straight months of solid gains, suggesting a loss of momentum in the economy at the end of the third quarter as a lackluster labor market and the rising cost of living curbed demand.
Traders have been pricing in an 87 per cent chance that the US central bank will lower borrowing costs by 25 basis points next week, according to CME Group’s FedWatch Tool.
Investors also focused on news from Russia and Venezuela to determine whether oil supplies from the two sanctioned members of the Organisation of the Petroleum Exporting Countries and allies (OPEC+) will increase or decrease in the future.
The failure of US talks in Moscow to achieve any significant breakthrough over the war in Ukraine has helped to boost oil prices so far this week.
A loss of Venezuelan oil production in case of a US military intervention will materially impact global benchmark prices as the market will have to replace Venezuela’s heavy crude.
Venezuela is estimated to pump about 1.1 million barrels per day of crude oil at present, so if the US-Venezuela tension escalation into an invasion in the South American country, this volume of crude would be at risk.
Reuters reported that the Group of Seven countries and the European Union are in talks to replace a price cap on Russian oil exports with a full maritime services ban in a bid to reduce the oil revenue that helps finance Russia’s war in Ukraine.
Any deal that could lift sanctions on Russia, the world’s second-biggest crude producer after the US, could increase the amount of oil available to global markets, weakening prices.
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