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
Four securities weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.95 per cent on Friday, erasing N41.17 billion from the bourse, which had its market capitalisation at N2.567 trillion compared with the previous session’s N2.618 trillion.
In the same vein, the NASD Unlisted Security Index (NSI) decreased at the close of business by 85.28 points to 4,277.07 points from 4,362.32 points.
The price decliners were led by 11 Plc, which gave up N20.50 to sell at N200.50 per share compared with the preceding day’s N221.00 per share, FrieslandCampina Wamco Nigeria Plc dropped N16.94 to close at N155.20 per unit versus Thursday’s closing price of N172.14 per unit, Central Securities Clearing System (CSCS) Plc went down by N2.11 to N84.68 per share from N86.79 per share, and Afriland Properties Plc lost 11 Kobo to end at N16.74 per unit, in contrast to the N16.85 per unit it closed a day earlier.
During the trading day, the value of transactions jumped by 172.1 per cent to N29.9 million from the preceding session’s N10.9 million, and the volume of trades soared by 136.5 per cent to 955,096 units from the previous 403,901 units, while the number of deals went down by 11.4 per cent to 31 deals from 35 deals.
Great Nigeria Insurance (GNI) Plc remained the most active stock by value on a year-to-date basis, with 3.4 billion units valued at N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units worth N6.5 billion, and CSCS Plc with 68.6 million units sold for N4.7 billion.
GNI Plc also ended the session as the most traded stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, trailed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units transacted for N415.7 million.
By Dipo Olowookere
The last trading session of this week on the floor of the Nigerian Exchange (NGX) Limited ended on a negative note, with a 0.66 per cent loss on Friday.
This was influenced by sustained selling pressure and cautious trading, which forced investors into profit-taking.
Data obtained by Business Post showed that the energy sector fell by 4.66 per cent, the insurance counter dipped by 2.23 per cent, the consumer goods index depreciated by 0.96 per cent, and the banking segment shed 0.28 per cent, while the industrial goods space remained unchanged.
At the close of business, the All-Share Index (ASI) of Nigeria’s stock exchange went down by 1,531.81 points to 232,049.02 points from 233,580.83 points, and the market capitalisation dropped N983 billion to settle at N148.905 trillion compared with Thursday’s N149.888 trillion.
Aradel was the worst-performing equity after it lost 10.00 per cent to close at N1,417.50. International Energy Insurance slipped by 9.95 per cent to N5.79, Trans-Nationwide Express depreciated by 9.89 per cent to N3.28, eTranzact crashed by 9.79 per cent to N14.75, and UPDC slumped by 9.72 per cent to N28.12.
The best-performing equity for the day was Universal Insurance, which gained 6.32 per cent to close at N1.01, McNichols grew by 5.52 per cent to N8.60, Linkage Assurance expanded by 4.67 per cent to N1.57, NGX Group appreciated by 4.35 per cent to N120.00, and Transcorp increased by 3.62 per cent to N41.50.
As look at the activity level indicated that investors traded 388.7 million stocks worth N18.4 billion in 44,631 deals compared with the 393.7 million stocks valued at N19.2 billion executed in 45,813 deals a day earlier, representing a decline in the trading volume, value, and number of deals by 1.27 per cent, 4.17 per cent, and 2.58 per cent, respectively.
By Adedapo Adesanya
The Naira recorded a loss of 82 Kobo or 0.06 per cent against the United States Dollar in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Friday, June 26, exchanging at N1,380.93/$1, in contrast to the previous day’s rate of N1,380.11/$1.
Equally, the domestic currency further weakened against the Pound Sterling in the official FX market yesterday by N6.06 to settle at N1,824.90/£1 versus the preceding session’s N1,818.84/£1, and lost N10.74 on the Euro to sell at N1,577 .58/€1 versus N1,566.84/€1.
At the GTBank forex counter, the Naira depreciated against the greenback during the session by N4 to close at N1,387/$1, in contrast to Thursday’s value of N1,383/$1, and at the parallel market, it was unchanged at N1,395/$1.
Interbank FX activity among financial institutions has fluctuated amid a sharp slowdown in forex market interventions by the Central Bank of Nigeria (CBN), as it allows demand and supply to move the market.
Also, a stronger greenback has generally put significant pressure on emerging-market currencies.
Nigeria has accessed the first tranche of a proposed $5 billion derivatives financing arrangement with First Abu Dhabi Bank PJSC, the largest lender in the United Arab Emirates (UAE).
The $5 billion facility, approved by the National Assembly earlier this year, is part of the federal government’s plan to diversify external financing sources and reduce borrowing costs. Structured as a Total Return Swap with First Abu Dhabi Bank, proceeds are earmarked for refinancing debt and supporting infrastructure financing.
If the proceeds are brought into the country through the official FX market, the transaction will increase the currency reserves or Dollar liquidity.
At the cryptocurrency market, Solana (SOL) grew by 2.2 per cent to $71.92, Cardano (ADA) gained 1.1 per cent to trade at $0.1474, Ripple (XRP) also appreciated by 1.1 per cent to $1.05, Dogecoin (DOGE) expanded by 0.9 per cent to $0.0755, and Ethereum (ETH) improved by 0.4 per cent to $1,578.84.
On the flip side, TRON (TRX) slid 0.6 per cent to $0.3203, Binance Coin (BNB) slumped by 0.3 per cent to $564.33, and Bitcoin fell by 0.2 per cent to $60,219.37, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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