Economy
GCR Affirms Forte Oil Issuer, Bond Ratings At A-(NG)
By Modupe Gbadeyanka
The national scale issuer ratings assigned to Forte Oil Plc of A-(NG) and A1-(NG) in the long term and short term respectively have been affirmed by Global Credit Ratings (GCR) with the outlook accorded as Stable.
Concurrently, the Series 1 Fixed Bond rating has been affirmed at A-(NG) and placed on Stable Outlook. The ratings expire in June 2018.
A statement issued by GCR explained that the ratings were accorded to Forte Oil Plc after taking cognisance of the firm’s top-tier position in the Nigerian downstream petroleum industry, underpinned by a visible brand, significant assets across the value chain, strong relationships with suppliers, experienced management team, as well as an extensive distribution and retail network.
The downstream petroleum industry is heavily reliant on imports, due to low levels of domestic refining. As a result, challenges were heightened by hard currency shortages (which resulted in product scarcity), adverse exchange rate movements and delayed subsidy payments in 2016.
In addition, the harsh economic environment and reduced consumer spending power led to a temporary decline in demand for petrol (following a 67% increase in the pump price in May 2016).
In a bid to reduce exposure to foreign exchange fluctuations, Forte Oil significantly scaled back its refined petroleum product import volumes. As such, FY16 and 1Q FY17 revenue and earnings were significantly below initial forecasts.
Forte Oil’s revenue increased by 19% to N148.6bn in FY16, underpinned by a general price increase across business segments and higher traded lubricant sales volumes. However, the partial cost pass through saw the gross margin decline to 13.9% in FY16, before rebounding to 17.6% in 1Q FY17. Effective cost management and focus on high margin, non-regulated products, saw operating margin increased from 5% in FY15 to 6.3% in FY16 edging up to 9.5% in the 3-month period to March 2017.
The net finance charge spiked to N4.2bn in FY16 (FY15: N1.6bn), due to the impact of Naira devaluation on import finance facilities and higher lending rates. Accordingly, net interest cover reduced to 2.2x in FY16 (FY15: 3.6x), and further to 2x in 1Q FY17.
The N9bn Series 1 Bond Issue and funding raised for the Geregu Power plant overhaul pushed debt up to N49.4bn at FY16. Coupled with a reduction in distributable reserves (following a dividend payment), this drove net gearing up to 75% at FY16 and 80% at 1Q FY17.
Positively, net debt to EBITDA improved to a respective 263% and 209% at FY16 and 1Q FY17, albeit behind target.
Forte Oil plans to raise additional capital of N20bn equity during 3Q 2017. Following the equity raise, management anticipates net gearing to reduce below 35% at FYE17 and FYE18 respectively, while net debt to EBITDA is projected to register around 100% for both years.
Despite the downstream petroleum industry challenges, prospects are enhanced by a strong baseline of demand, on the back of the country’s large urban population and heavy vehicular traffic.
In addition, the completion of Dangote Group’s 650,000bbl/d refinery (set for 2019), is expected to materially reduce the dependence on imports, with the Ministry of Petroleum projecting the cessation of fuel importation once the plant is at full capacity.
Forte Oil plans to expand its retail network and diversify its non-fuel revenue streams with strong local and international brands. In this regard, the power generation business had increased capacity utilisation to 100% by 1H FY17 (1H FY16: 35%) and should contribute materially to earnings in the medium term.
The Group also anticipates a rebound in the upstream oil and gas services business on the back of broader economic recovery in the medium term, and thus plans to expand service offerings.
Sustainable margin enhancement, on the back of the materialisation of current business plans could result in positive rating action if it translates to stronger credit protection metrics in the medium term.
Conversely, adverse regulatory/policy changes, or other external factors could adversely affect earnings and result in liquidity strain and/or increased gearing metrics, placing downward pressure on the ratings. In addition, sustained increase in debt levels and gearing metrics would lead to negative rating action
As the Series 1 Fixed Rate Bond is a senior unsecured obligation of the Issuer, the Bonds will bear the same rating as the Issuer, and any change in the rating assigned to the Issuer will directly affect the Bond rating.
By Adedapo Adesanya
Three stocks further weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.12 per cent on Wednesday, April 8, with the Unlisted Security Index (NSI) down by 44.43 points to 3,930.91 points from the previous day’s 3,975.34 points, and the market capitalisation went down by N26.59 to N2.351 trillion from N2.378 trillion.
MRS Oil lost N11.00 during the session to close at N161.00 per share compared with Tuesday’s closing price of N172.00 per share, Central Securities Clearing System (CSCS) Plc dipped by N3.74 to N67.95 per unit from N71.69 per unit, and Afriland Properties Plc fell by N1.10 to sell at N15.95 per share versus N17.05 per share.
There were two gainers at the midweek trading session, led by IPWA Plc, which appreciated by 55 Kobo to N6.61 per unit from N6.06 per unit, and First Trust Mortgage Bank Plc improved its value by 4 Kobo to N2.32 per share from N2.28 per share.
Yesterday, the volume of securities rose by 620.4 per cent to 5.7 million units from 797,264 units, the value of securities increased by 25.1 per cent to N32.7 million from N26.1 million, and the number of deals climbed by 12.1 per cent to 37 deals from the preceding session’s 33 deals.
Great Nigeria Insurance (GNI) Plc ended the day as the most traded stock by value on a year-to-date basis with 3.4 billion units sold for N8.4 billion, trailed by CSCS Plc with 57.2 million units exchanged for N3.9 billion, and Okitipupa Plc with 27.5 million units traded for N1.8 billion.
GNI Plc also finished the session as the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units worth N415.7 million, and Infrastructure Guarantee Credit Plc with 400 million units transacted for N1.2 billion.
By Adedapo Adesanya
Foreign Exchange (FX) demand pressure eased on the Naira on Wednesday, April 8, in the Nigerian Autonomous Foreign Exchange Market (NAFEX) after gaining N14.84 or 1.07 per cent against the greenback to quote at N1,371.82/$1 compared with the previous day’s N1,386.66/$1.
Also, the local currency appreciated against the Euro in the same market window at midweek by N1.54 to close at N1,604.07/€1 versus Tuesday’s closing rate of N1,605.61/€1, but lost N6.26 against the Pound Sterling to trade at N1,844.83/£1 versus N1,838.57/£1.
In the parallel market, the exchange rate of the Naira to the US Dollar remained unchanged yesterday at N1,410/$1, according to data sourced by Business Post.
There were indicators that the official FX market experienced a liquidity surge, which eased worries around the dominant US Dollar on Wednesday, as the Central Bank of Nigeria (CBN) revealed interbank deals rose to 220 from 71 reported the previous day.
The domestic currency has been in strong demand from foreign portfolio investors seeking to purchase OMO bills and other fixed-income instruments.
Forecasts also show that the local currency will remain relatively stable during the second quarter of the year, trading within the N1,340 to N1,430 per Dollar band on improved FX liquidity, stronger oil earnings, and rising external reserves, which have climbed above 50 billion dollars.
As for the cryptocurrency market, it fell after an initial ceasefire-fueled rally, with markets retracing Wednesday’s “ceasefire euphoria” as cracks emerge in the US-Iran truce while the Strait of Hormuz remains effectively closed.
Global risk assets face renewed pressure as geopolitical uncertainty combines with what analysts call “uncoordinated tightening” by major central banks, reinforcing higher-for-longer interest-rate expectations.
The price of Cardano (ADA) fell by 4.7 per cent to $0.2500, Ripple (XRP) slumped 3.7 per cent to $1.33, Dogecoin (DOGE) shrank by 3.5 per cent to $0.0915, Binance Coin (BNB) slipped 2.6 per cent to $600.02, Ethereum (ETH) went down by 2.5 per cent to $2,183.82, Solana (SOL) dipped 2.5 per cent to $82.24, and Bitcoin (BTC) depreciated by 1.1 per cent to $70,995.20.
However, TRON (TRX) appreciated by 0.4 per cent to $0.3173, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The Nigerian Exchange (NGX) Limited rallied by 0.28 per cent on Wednesday despite weak investor sentiment, as the bourse ended with 18 price gainers and 38 price losers, implying a negative market breadth index.
The growth recorded yesterday by Customs Street was influenced by the 2.11 per cent rise posted by the energy index, and the 1.79 per cent jump achieved by the banking sector.
The other sectors experienced profit-taking, with the consumer goods losing 1.07 per cent, the insurance counter down by 0.36 per cent, and the industrial goods space down by 0.19 per cent.
Universal Insurance chalked up 10.00 per cent to sell for N1.21, Omatek improved by 9.78 per cent to N2.47, VFD Group expanded by 9.71 per cent to N11.30, CWG appreciated by 9.64 per cent to N21.05, and Livestock Feeds gained 9.56 per cent to close at N7.45.
On the flip side, UPDC REIT lost 10.00 per cent to settle at N6.75, Fortis Global Insurance shed 9.92 per cent to quote at N1.18, Deap Capital depreciated by 9.85 per cent to N5.40, Chams went down by 9.47 per cent to N3.06, and Japaul declined by 8.82 per cent to N3.10.
Yesterday, the All-Share Index (ASI) went up by 562.43 points to 202,585.53 points from 202,023.10 points, and the market capitalisation advanced by N389 billion to N130.404 trillion from N130.015 trillion.
During the session, 1.0 billion stocks worth N40.6 billion exchanged hands in 52,723 deals compared with the 1.1 billion stocks valued at N40.3 billion executed in 78,006 deals a day earlier, indicating an uptick in the trading value by 0.74 per cent, and a shortfall in the trading volume and number of deals by 9.09 per cent and 32.41 per cent apiece.
The activity chart was led by Access Holdings, which sold 233.0 million units valued at N6.1 billion, Fidelity Bank exchanged 113.1 million units worth N2.2 billion, Wema Bank recorded a turnover of 103.3 million units valued at N2.7 billion, Zenith Bank transacted 60.6 million units for N6.5 billion, and Chams traded 47.5 million units worth N154.6 million.
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