Economy
Fitch Upgrades Nigeria’s Seven Energy to ‘CC’
By Dipo Olowookere
Fitch Ratings has upgraded Nigeria-based Seven Energy International Limited’s Long-Term Issuer Default Rating to ‘CC’ from ‘RD’ (Restricted Default) following completion of the consent solicitation for the company’s 10.25% USD300 million senior secured notes due 2021.
Simultaneously, Fitch has affirmed wholly owned subsidiary Seven Energy Finance Limited’s $300 million senior secured notes at ‘C’ with a ‘RR6’ Recovery Rating.
Following the completion of Distressed Debt Exchange (DDE) in December 2016, Seven Energy may choose to pay interest on the notes in kind for up to four coupon payments between 11 October 2016 and 11 April 2018, subject to certain conditions.
However, its short-term liquidity remains extremely weak due to accumulated accounts receivables for sold natural gas, a limited ability to convert naira into dollars, and the ongoing Forcados export pipeline closure since February 2016.
Management has taken steps to improve the company’s liquidity, but we believe the current debt structure may be unsustainable and a default of some kind is probable.
All Seven Energy’s oil liftings from OMLs 4, 38 and 41 under the strategic alliance agreement (SAA) with the state-owned NPDC have stopped since February 2016, as the Forcados oil pipeline and terminal remain shut due to the threat of militant attacks. Management has given no estimate on when Forcados will be restarted.
As an alternative option, the company is considering barging oil via the inland Warri refinery. This option has not yet been tested by Seven Energy and we believe projected barging volumes would not compensate for the loss of the Forcados pipeline volumes.
On February 7, 2017, Seven Energy announced that Nigerian Petroleum Development Company Limited (NPDC) may terminate the SAA after 17 March 2017 unless the company meets outstanding cash calls.
Fitch said it understands from Seven Energy that it plans to challenge this potential action to preserve its contractual rights under the SAA. This may further worsen the company’s liquidity position and affect its operational profile; however, these risks are captured in the ‘CC’ rating.
Developing Natural Gas Business: The natural gas business in Nigeria’s southeast is an important growth driver for the company. It is now on track to ramp up gas sales to 150MMcfpd and more. The construction of the power grid to allow local power stations to run at full capacity has been completed and the Calabar power station (NIPP), one of the major off-takers, is able to generate additional electricity.
Uncertain Cash Flows from Gas: Near-term cash flows from the gas business are uncertain as sale volumes remain volatile and the company’s major gas off-takers, state-owned power stations, delay payments for consumed gas.
In November 2016, Seven Energy agreed a $112 million partial payment guarantee with Nigeria’s federal government for gas supply to the Calabar power plant and other customers; however, the guarantee is still unavailable pending finalisation of ancillary documentation.
Seven Energy’s midstream gas infrastructure assets are fully ring-fenced and serve as security for the company’s Accugas IV loan. There is a risk that the Accugas IV lenders may decide to enforce the security, stripping the company of its main cash-generating asset and effectively forcing it into liquidation.
Naira Convertibility Issues: Seven Energy’s natural gas revenues are US-dollar pegged but are received in naira. Nigerian companies are facing difficulties exchanging naira into US dollars, which Seven Energy needs to service its US-dollar debt, at the official exchange rate. To alleviate the problem, the company is working to convert the Accugas IV facility into naira. The foreign currency conversion issue negatively affects the company’s liquidity as long as Forcados remains shut, as the company receives little US dollar revenues from other operations.
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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