Dangote Cement to double capacity this year

Nigeria's biggest company by market capitalisation, Dangote Cement, expects to double its cement production capacity across Africa this year to 40 million tonnes, its chief executive said on Monday.

Devakumar Edwin told the Reuters Africa Investment Summit in the commercial hub of Lagos that the firm would add 9 million tonnes to its Nigeria operations, bringing them to 29 million tonnes, and open plants across Africa that have been several years in the making, adding a further 11 million tonnes.

Dangote Cement, owned by Africa's richest man Aliko Dangote with a personal fortune of $25 billion, saw its 2013 profits increase by 40 percent to 190.76 billion naira ($1.16 billion), from 135.64 billion naira a year earlier.

"The key driver is the increase in volumes. We have kept a focus on controlling costs, but our focus on volume growth ... has been what has increased our profits," Edwin said.

Dangote has cement plants spanning Africa, from Senegal to South Africa, but most have been in construction phase and between them they contribute less than a million tonnes to the group's current overall production capacity, Edwin said.

That would change this year, as plants in Senegal, Sierra Leone, Cameroon, Zambia, South Africa and Ethiopia come on tap.

"All of them will come into operation in the current year," Edwin said.

Additional capacity in Ivory Coast, Ghana, Liberia, Tanzania, Congo and in Nigeria would mean that by mid-2016 Dangote would have a 60 million tonne capacity, he added.

Almost all of this expansion had been funded with internal cash flows, Edwin said, unlike rivals.

"Other cement majors borrowed heavily for mergers. One of the key reasons we have been able to grow aggressively in the African market is because they are cash strapped and we do not have that problem," he said.

Dangote's main rival in its home market is France's Lafarge.

Dangote has long said it intends to list in London, although a plan to do so last year has been put back. Analysts say corporate governance issues remain a hurdle. Edwin denied that.

He said the company had fulfilled a list of requirements, including appointing an independent board and carrying out appropriate financial reporting.

The reason it was taking time to list was that investors had not fully appreciated the value of Dangote's non-producing assets outside Nigeria. "But that is changing," Edwin said, adding the company hoped to list some time next year.

Investors, analysts react as rebasing pushes Nigeria’s economy to $510 billion

...26^th in the World      ....Largest in Africa

Nigeria showed a path to becoming a G-20 economy as its GDP surpassed South Africa’s to become the largest on the continent, and 26^th in the world after the country updated the statistics used in calculating economic output for the first time since 1990.

The new rebased data shows that the size of the Nigerian economy is now estimated at N80.3 trillion ($510 billion) for 2013, Yemi Kale, head of the National Bureau of Statistics (NBS), said at a press conference to announce the results in Abuja.

That compares with the World Bank’s 2012 GDP figures for South Africa of $384.3 billion. 

“The economy’s structure has changed significantly,” said Kale. “We are witnessing a historic rebasing of our GDP which was not done for more than two decades,” Kale said.

The NBS recalculated the value of GDP based on production patterns in 2010, increasing the number of industries it measures to 46 from 33 and giving greater weighting to sectors such as telecommunications and financial services.

“Nigeria is now officially the largest economy on the continent, which will make it increasingly harder for companies looking at Africa to overlook, especially considering the size of the domestic market and its potential,” Samir Gadio, an Emerging Markets strategist at Standard Bank in London, said in a response to questions.

In 2013, the Nigerian financial markets flourished as foreign portfolio managers in search of higher yielding assets flocked to developing economies.

Total Foreign Portfolio Investment in 2013 grew by 28.78 percent to settle at $17.37 billion, according to data from research and investment firm Meristem Securities.

“I hope the announcement will influence international investors’ perceptions of Nigeria and Africa, helping them to reconsider the scale of the opportunity and potential returns,” said Andrew Alli, CEO of the Africa Finance Corporation (AFC), with a balance sheet size of $2 billion.

“However, it is only through continued investment in basic infrastructure projects, such as road, rail and power generation, that all African countries will really be able to transform prevailing investor sentiment,” Alli said.

Nigerian economy grew by an average of 6.39 percent between 2010 and 2013 with the rebased numbers.

Services sector grew the fastest at 7.72 percent, followed by industry at 7.19 percent. But agriculture showed a slower growth at 2.61 percent.

Nigeria is now the 26th largest global economy (using 2012 figures), coming after countries like United States, which is still the number one at $16.245 billion, China and China at about $$8.227 billion.

Japan comes third at $5.9597 billion, followed by Germany, France, United Kingdom, Brazil, Russia federation, Italy, India, Canada, Australia, Spain, Mexico, Korea Republic, Indonesia, Turkey, Netherlands, Saudi Arabia, Switzerland, Sweden, Norway, Poland, Belgium and Argentina, .

“Nigeria's new GDP data will be positive because with a larger GDP base, ratios such as fiscal deficit to GDP, debt to GDP, and GDP per capita will also improve, meaning Nigeria can be ranked closer to some developed and emerging market economies,” said Abiodun Keripe, research analyst at Lagos based, Elixir Investment Partners Limited.

“It can also lead to better Sovereign/credit rating as with improved ratios, Nigeria can command better rating which will boost confidence,” Keripe said.

Agriculture, in the news series measured around N12.98 trillion in 2010, N14.42 trillion in 2011, N15.91 trillion in 2012 and N17.62 trillion in the 2013 forecast.

Industry stayed at N13.99 trillion in 2010, N17.31 trillion in 2011, N18.66 trillion in 2012 and N20.08 trillion for 2013.

The results also showed that services within the four years went up significantly, recording some N27.22 trillion in 2010, N31.22 trillion in 2011, N36.24 trillion in 2012 and forecast of N41.92 trillion for 2013.

Ngozi Okonjo-Iweala, Minister of finance and coordinating minister for the Economy said the results of the rebasing exercise showed that Nigeria is more diversified than had been thought.

She noted key changes are the noticeable shift in the share of key sectors to the country’s overall GDP.

She said an example is the decline in the share of the agricultural sector to the overall GDP and a rise in the share of services.

She added that since Nigeria’s rebased GDP is expected to be a more accurate reflection of the structure and size of current economic activities in the country, presenting a clearer sectoral distribution and performance, it will help better policy making by government and good analysis of investment potential by investors.

Zenith Bank to float $1 billion Eurobond

…as S&P revises outlooks on five Nigerian Banks to negative

Zenith Bank of Nigeria Plc intends to float up to a maximum of $1 billion in a new Global Medium Term Note programme, with Citigroup Global Markets Limited and Goldman Sachs International, acting as Joint arrangers and dealers.

The net proceeds from each issue of Notes will be used by the Bank for its general banking purposes.

“Under this $1,000,000,000 Global Medium Term Note Programme, Zenith Bank Plc (the “Bank” or the “Issuer”) may from time to time issue notes (the “Notes”) denominated in any currency agreed between the Issuer and the relevant Dealer, subject to compliance with all applicable legal and/or regulatory and/or central bank requirements,” Zenith Bank said in a base prospectus dated April 1, 2014, seen by PATLOGIC.

Eurobond issuances by Nigerian lenders may be seen as attractive by investors, due to the relatively few corporates issuing dollar denominated debt in sub Saharan Africa (SSA) which often leads to a demand supply mismatch.

The growing issuance of Eurobonds by Nigerian lenders, signals the increasing ambitions of banks as opportunities open up in Nigeria, and as increased regulation causes lenders to grow their loan books to boost earnings.

Zenith Banks move to float its Eurobond comes as rating agency Standard and Poor’s (S & P)said it has revised its outlook on five Nigerian financial institutions (Access Bank, First Bank, Stanbic IBTC, GTB and Zenith Bank), to negative from stable due to its earlier revised outlook on the sovereign (Nigeria) which it says was to reflect heightened political and institutional risks.

“We do not rate any bank in Nigeria above the sovereign because of the likely direct and indirect influence sovereign distress would have on the banks' operations,” S & P said in a statement.

“We are therefore revising to negative from stable our outlooks on the five Nigerian banks that we rate at the sovereign foreign currency level.”

The revised outlook for Zenith may mean a slightly higher yield will be demanded by investors as the Eurobond will price off the sovereign benchmark.

Nigeria issued $500m of five year Eurobonds and $500m of 10-year Eurobonds last July, at a yield of 5.375 per cent and 6.625 per cent respectively.

Nigerian banks issued a total of $1 billion of Eurobonds in 2013 as a growing economy and lenders need for dollars to finance power and oil projects feeds demand for offshore borrowing.

Outstanding Eurobonds issued by Nigerian lenders is equivalent to $1.85 billion, 23 percent higher than the $1.5 billion in outstanding sovereign Eurobond issuances.

The lenders issuance of debt in the Eurobond market is also a way to tap cheap funding compared to the domestic corporate bond market, where rates may top 13 percent for similar tenor, although analysts say the banks would have to hedge their exposure to currency risk.

Zenith Bank is the second largest bank in Nigeria by total assets as at 31 December 2012.

The Group provides banking and other financial services in Nigeria, other countries in Africa and Europe with a customer account base of over two million accounts from 340 branches in Nigeria and 29 branches across Africa and Europe as at 31 December 2013.

It had total assets of N3.1 trillion ($20.19 billion) and a Tier 1 capital of N506.8 billion ($3.25 billion) as at that date.

Zenith Bank reported gross earnings for the year ended 31 December 2013, of N351.470 billion.

The establishment of the Global Medium Term Note Programme was duly authorised by a resolution of the Board of Directors of the Bank dated 12 December 2013.

Dangote Cement 2013FY profits up 40 percent

..proposes N7 per share dividend

Dangote Cement Plc (DANGCEM) Nigeria’s largest company by market value and sub Sahara Africa biggest cement producer has just released its audited financial statement for year ended December 2013.

The results which were posted on the website of the Nigeria Stock Exchange (NSE) showed the company grew revenue by 29.4 percent year on year (y/y) to N386.17 billion in 2013FY from N298.45 billion in 2012FY.

Profit before tax (PBT) for the year ended December 2013 climbed by 40 percent y/y to N190.76 billion as against N135.64 billion in the same period of prior year (FY12).

The results also showed Profit after tax (PAT) increased by 38.73 percent y/y to N201.19 billion in FY:13 from N145.02 billion in FY:12.

The company is proposing a dividend per share of N7 to be paid to shareholders.

Bears rule as stocks in worst start since 2009

The sell-off by bearish investors that has led to a correction in Nigerian Stocks this year means the benchmark share index has gotten off to its worst start to a year since 2009, after posting one of its biggest annual rallies in 2013.

Stocks have lost -8.41 percent year to date (Fri March 21), the worst performance since stocks fell -8.85 percent between January and March of 2009.

“The investment climate now is fogged by different kinds of headwinds although asset valuations remain low and attractive,” said Abiodun Keripe, research analyst at Lagos based, Elixir Investment Partners Limited.

“Headwinds from QE tapering, CRR hike on public sector deposit, sharp decline in external reserve to about $38.4bn, the CBN Governor's suspension, and uncertainty from impending elections are factors that are depressing markets currently.”

Most banking stocks have fallen this year as investors fret over the possible outcome of this week’s Monetary Policy Committee (MPC), meeting.

Analysts expect a further tightening of liquidity via a possible increase in the cash reserve requirement (CRR) on public sector deposits to 100 percent by the central bank (CBN).

Guaranty Trust Bank Plc, the country’s biggest lender by market value, gained 3.4 percent to N25.85 last Friday, bringing year to date losses to -5.07 percent.

Access Bank, another tier-one lender rose by 0.26 percent to close trading at N7.62 a share.

The lender which acquired distressed lender Intercontinental Bank has dropped -20.73 percent year to date.

The shares of other first tier banks such as Zenith, FBN holdings and UBA have lost -19.71 percent, 23.62 percent and -20.22 percent, respectively this year.

 “The rate of downturn of equities in recent trading days is majorly tied to low investment appetite for equities, weak investor confidence in a recovery as well as the dominance of market-wide negative sentiments,” said research analysts at Meristem Securities.

“The sell pressure has persisted as significant catalysts that may drive demand levels and swing equities in a positive trend are yet to surface.”

The NSE-ASI surged 47 percent in 2013, finishing the year at the highest level since September 2008.

Most analysts had expected the rally to continue at least in the first half of 2014, but that follow through has yet to materialise.

“The major trigger which was initially envisaged was companies’ corporate actions but the declaration of ZENITHBANK and GUARANTY dividends at implied yield of 7.8 percent and 6.12 percent as at the time of declaration was clearly jettisoned by the market,” said Meristem research analysts.

Stocks fell for three out of five days last week.

Wednesday’s (19^th March 2013) decline on the NSE marked a streak of six straight days of losses.

The Nigerian Stock Exchange All-Share Index (NSE-ASI) however rebounded by 490.98 points or 1.32 percent, to close at 37,799.58 points at the 2.30 p.m. close of trading in Lagos, last Friday.

About 309.7 million shares changed hands on Friday, with total value traded of N5.06 billion, according to data from the bourse.

Foreign investors may be selling stocks due to uncertainty over the CBN naira policy and prospects of a smooth confirmation hearing –at the Nigerian Senate - for suspended Governor Sanusi Lamido Sanusi’s successor.

Total foreign outflows from the NSE rose by 34.8 percent between December 2013 and January 2014, according to the latest data from the bourse. Foreign outflows were N50.14 billion in January 2014, up from N37.17 billion in December 2013 and N20.50 billion in January 2013.

The CBN has spent $7.27 billion year to date to prop up the naira at its bi-weekly foreign exchange auctions. 

The local currency has retreated 2 percent this year versus the dollar, despite heavy CBN intervention, while foreign reserves used to bolster the local currency has dropped 11 percent year to date.

Stocks are cheaper now than in 2009, even though company earnings have grown from the levels they were at five years ago.

“The NSE-ASI index price-earnings ratio closed 2009 at 33.58x. This, compared with 13.43x it is presently valued clearly shows how undervalued the overall market is,” said Keripe.

SEPLAT IPO..to buy or not to?

Seplat the indigenous Nigerian oil and gas company is set to IPO on the Nigerian and London Stock Exchanges in two weeks (April 4)

More information can be gleaned below
file:///C:/Users/USER/Downloads/Seplat%20Petroleum%20Intention%20to%20Float%20RNS%202014.pdf

The company will probably come to market as a $3 billion dollar company, so the number of shares outstanding will determine the price in Naira.

For example if the company has 1 billion shares outstanding it will probably price at N495 per share or $3 bn (N495 billion) / 1 billion.

My investing thesis is that this will become a $9 billion - $11 billion by 2016-2017, based on their oil, gas business and potential for further acquisition as well as pristine balance sheet and pioneer tax status.

This is also a good dividend play. The company paid a cash dividend of N16.5 per share in 2013 ($.10 a share @ N165/ dollar).

My advise to investors is to go with these professionals at Seplat.

The stock will be listed on April 4 (two weeks time), so start getting ready your firepower (Nairas....)

My 0.02 cents.

CBNs inflation success bumps against costs of Naira defense

..analysts urge greater market role for currency

The Central Bank of Nigeria’s success at maintaining benign inflation expectations is bumping up against the steep cost of defending the naira (the nominal policy anchor), even as some analysts urge a greater role for the markets in determining the level of the currency.

Inflation in Nigeria dropped to 7.7 percent year on year in February 2014, from 8 percent y/y in January and December, the lowest levels since late 2007.

The monetary policy committee (MPC) of the CBN meets next week (24 – 25 March) and one of the outcomes for it to consider may be an increase in the naira trading band, according to analysts.

The CBN will however be looking at its success recorded so far in bringing down inflation, and weighing that against any positives from a shift to a less heavily defended currency management strategy.

“Our projections suggest that inflation will remain in single digits in the medium term and may well stabilise with a  7 percent handle in first half (H1) :2014 (7.5 percent y/y in March), before edging up moderately in H2:14,” said Samir Gadio, an emerging markets strategist at Standard Bank in London, in a response to questions

“The upside risks to this outlook stem from a potential readjustment of the mid-point (155) of the RDAS FX band.” 

The CBN has spent $7.27 billion year to date to prop up the naira at its bi-weekly foreign exchange auctions. The local currency has lost about 2.3 percent year to date versus the dollar, despite heavy CBN intervention.

The commercial bank regulator aims to keep the naira within a trading band of N155 plus or minus 3 percent.

The naira traded at N164.7 as at 4.17 pm, Nigerian time on the interbank FX market, according to data from the FMDQ, putting it outside the CBNs trading band target.

The CBN should consider extending the limit for the naira’s daily moves against the U.S dollar, to give the markets a greater role in determining the naira’s value, said Bola Onadele, Managing Director/ Chief Executive Officer (CEO), of the Financial Markets Dealers Quotations (FMDQ).

“The naira trading range should be widened to perhaps as much as 10 percent plus or minus N155 per dollar,” said Onadele in a March 12 interview on the sidelines of the RMB Nigeria executive breakfast session, held in Lagos.

“This would unwind one way bets against the naira and enable the forwards (options/ futures) markets play a greater role for those who want to hedge their naira exposure.”

The CBNs gross external reserves are down 11.26 percent year to date to $38.6 bn on March 14 from $43.5 bn on Jan 2, 2014.

The spike in forex demand in February to $3.1bn, equivalent to a 7-month high and plunge in external reserves to a 17-month low makes naira exchange rate depreciation imperative, said Bismarck Rewane, an economist and CEO of research firm Financial Derivatives Company (FDC).

“The naira is now under speculative arbitrage attack and panic buying,” said Rewane in March 5 presentation of the Lagos Business School, executive breakfast meeting.

“Lower oil revenues, depletion in reserves, and reversal of FDI flows to Nigeria and other emerging markets are some of the factors influencing forex pressure.”

The MPC of the central bank may vote to move the naira trading band higher in combination with an increase in the cash reserve ratio (CRR) for public deposits in banks to 100 percent at their meeting next week.

Such a move by the CBN however will not improve external competitiveness in an economy where oil accounts for 95 percent of exports, said Gadio.

“Overall, the root cause of the weak confidence in the FX regime remains the marginal level of fiscal savings. A more flexible exchange rate will most likely exacerbate the continued upward pressure on USD/NGN in the current environment, with little gains in terms of import substitution given the prevalent infrastructure and energy bottlenecks.”

GDP rebasing to expose economy’s structural defects

 The results of the long delayed exercise to rebase Nigeria’s gross domestic product (GDP) which are set to be released on March 31^st, may help to elicit some bragging rights for the nation as it is expected to show it leapfrogging South Africa, to become Africa’s largest economy.

Post the initial euphoria however; a scrutiny of the new data-set will likely reveal the structural shortcomings of the Nigerian economy as it severely under performs when compared to peer countries in the same economic size range, analysis of available economic data shows.

The National Bureau of Statistics (NBS) which is seeking to change the calculations of Nigeria’s GDP using a new base year of 2010, will probably report a 65 percent increase in Nigeria’s nominal economic output, to $432 billion putting it among economies such as Austria ($394 bn), Thailand ($401 bn), Iran  ($389 bn), UAE ($395 bn) and Argentina ($474 billion).

However this is where the comparison mostly ends as most of the countries in this GDP range are better diversified than Nigeria,

“The reality of the GDP rebasing is that the ease of doing business remains unchanged, while new nominal GDP figures will widen the inequality gap,” said Bismarck Rewane, CEO of research firm Financial Derivatives Company (FDC), in a recent presentation.

“Structural changes still need to be put in place as the infrastructure gap persists and technology needs to be improved.”

A 60 – 65 percent upward adjustment to (GDP) would lower Nigeria’s consolidated government revenue to17-22 percent of GDP, which is lower than the average for the peer countries listed above.

Nigeria’s post rebasing GDP per capita of about $2,200 is the lowest among the grouping, while its position in the World Bank’s ease of doing business ranking at 147 out of 189 countries is lower than Thailand (18), UAE (23), Austria (30), and Argentina (126).

Nigeria scores higher than Iran (152) on the ease of business index, however even with seven years of international sanctions, Iran does have a more diversified economy than Nigeria.

Iran’s domestic steel production grew 6.5 percent to 15.4 million tons last year, more than double the global growth rate of 2.4 percent, according to the World Steel Association.

“Iran has a broad manufacturing base – which produced 50 percent more cars than Turkey in 2011,” said Charles Robertson, global chief economist at Renaissance Capital, in a research note released March 11, 2014.

“The stock market capitalization is roughly $170 bn. The free float on the main market is closer to $30bn, which is above the MSCI free floats of Kuwait and Nigeria. On the local exchange’s data, daily trading volumes are around $150mn. This compares with $26mn in Nigeria in 2013.”

Thailand and UAE also have well diversified economies, with the latter using its massive oil and gas resources to expand economic activity in tourism, manufacturing, services, and construction. In 2012, seventy-one percent of UAE GDP came from non-oil sectors.

Thailand the number one rice exporter has became the world’s leading manufacturer of hard-disk drives by quantity and in 2012 moved ahead of Britain, Spain and Canada as an auto producer.

Of the 2.4 million vehicles produced in Thailand by Japanese, U.S. and European carmakers, 1 million were exported, according to Bloomberg data.

Nigeria’s rebased GDP components may show wholesale and retail trade, telecommunications, crude petroleum and gas, and business and other services making up a maximum of 68 percent of economic output, according to Rewane.  

“What this means it that we are becoming more of a services and extractive production economy,” said Rewane.

“Larger nominal numbers are useful for comparison but do not reflect economic growth.”

Blackouts till 2017 mean privatisation promise elude Nigerians

Residents of 401 Road in Festac Town, a Lagos community of about 1,000,000 people have been without electric power for three weeks as a result of a cabling fault that the Eko Electricity Distribution Company (DISCO), which serves the area, has apparently been unable to fix.

“We heard that some underground cables were damaged due to some road construction,” said Favour Omoregie a shop owner who has to depend on petrol generators which are five times more expensive to run than utility power, to keep her drinks cold.

“I just don’t know what is happening. We heard they have sold NEPA but it seems that the light situation is worse now, than before,” said Omoregie.

In Nigeria, sporadic power cuts have hobbled Africa’s second – largest economy for years as a lack of investment and inept management of the government owned power monopoly meant blackouts became the norm rather than an exception.

The government’s solution was to begin a privatisation process through the sale of 18 companies unbundled from the former PHCN (or NEPA) comprising of six Generation Companies (GENCO’s), 11 Distribution Companies (DISCOs), and a Transmission Company (TCN), which were expected to provide a steady flow of electricity to homes and businesses.

While the first phase of the process was concluded last November, the upside from the privatisation, have failed to materialize.

“It seems to me that the expected gains from power privatisation were sold to Nigerians as an immediate one, which is far from the case,” Doyin Salami, an economist, and member of faculty at the Lagos Business School (LBS), said at the Rand Merchant Bank Executive breakfast discussion, on Wednesday.

“It may take 3 – 5 years to get sustainable power supply.”

It is estimated that Nigeria needs an annual investment of $3.5bn to achieve its generation capacity target of 40,000 megawatts (MW) by 2020.

Nigeria’s, current peak grid power generation stands at about 3,849 MW with a per capita electricity usage of 136 kilowatt hour (KWH).

This compares with an average per capita electricity usage of 4,803 KWH in South Africa, which generates about 41,000 MW.

To work around the inadequate power supply, Nigerians have resorted to generating electricity themselves using diesel and petrol‐powered generating sets.

The Ministry of Power estimates that total electricity generated through these methods accounts for up to about 6,000 MW, more than the total commercial power generated and supplied to the grid.

Global Business Intelligence (GBI) - a research firm - estimates that Nigerians spent about $455m (N70.5 billion) on generators in 2011.

The Discos – which are closest to consumers like Omoregie – are at the end of a complex chain of players in the power sector which include the gas suppliers, IPPs/ Gencos, the bulk trader (NBET), and TCN.

The new private owners of power assets are struggling to meet capital expenditure pledges made as issues ranging from gas unavailability for power turbines, need for market reflective tariffs and power cheats from bypassed meters and unpaid bills crimp revenues.

West Power & Gas Limited (WPG), which paid $135 million to acquire the assets of Eko Disco, said last year that it had allocated $250 million for the rehabilitation of the Disco.

However ongoing blackouts in most parts of Lagos shows that such capex spend promises have yet to materialize.

“Traction from power will come in 2 years time,” said Bismarck Rewane, an economist and CEO of research firm Financial Derivatives Company (FDC).

“There is the need for capex and knowhow,” Rewane said.

In the meantime Discos and Gencos struggle under huge debt taken on to finance the power assets acquisition even as some of the assumptions underlying the acquisitions fail to add up.

The private power owners, including Discos and Gencos owe at least $2.45 billion (Debt – Equity percentage mix of 70: 30) to Nigerian banks, for financing of power assets acquired at a total cost of $3.5 billion.

The Multi Year Tariff Order (MYTO) that governs the financials of the Nigerian electricity market benchmarked the tariff on the assumption that the grid will generate at least 7,000 MW by December 2014.Today, the grid only produces on the average about 3,500 MW daily.

“We had hoped on extra power coming from the NIPPs. But many of these plants do not have enough gas to produce to capacity,” said Sam Amadi, Chairman/CEO of the Nigerian Electricity Regulatory Commission (NERC).

Chevron, Sasol, set to commission $10 bn Escravos GTL plant in Nigeria

The long-delayed Escravos gas to liquids (GTL) project in Nigeria – which had been hoping to begin operations before the end of 2013 – is now expected to start up by mid 2014.

The construction has been completed and the plant is now in the commissioning phase, according to Sasol Chief Executive Officer (CEO) David Constable in a statement about upcoming project milestones in the 2014 calendar year.
“In Nigeria, the Escravos GTL project is in start-up phase. Beneficial operation for the first train is expected before the end of June,” Constable said during a March 10, 2014 presentation he made on Sasol Limited financial results, for the six months ended 31 December 2013.
The Escravos GTL project has been severally delayed and capital expenditure on it is approaching $10 billion, according to Chevron, one of the shareholders.
This compares with the $1.2 billion that was spent on the Oryx GTL project in Qatar, a similar project in terms of technology and capacity, which was inaugurated in 2006.
The Slurry Phase Distillate technology developed by Sasol and utilised at the Oryx project will also be in use at the Escravos project.

The Escravos GTL project will produce diesel, kerosene, naphtha and LPG – with the diesel and kerosene providing the nation with premium transportation fuels: diesel for road vehicles and kerosene to produce jet fuel for aviation.

The products are expected to offset some oil product imports.

The business rationale behind the GTL project is based on the wide differential between gas and liquids (crude oil) pricing, which Sasol believes will persist over the long-term.

The Escravos project is a 33,000-barrel-per-day gas-to-liquids project designed to process 325 million cubic feet per day of natural gas from the Escravos Gas Plant (EGP) expansion.

The project is being developed by Chevron Nigeria Limited (75 percent stake) and the Nigerian National Petroleum Corporation (NNPC) (15 percent) and Sasol (10 percent) with plans to expand the EGTL capacity to 120,000 b/d within 10 years.

Market Reverses Two-Day Gain

The Nigerian bourse reversed its 2-day bullish run, shedding 30bps to peg the YtD return at -5.27 percent at the close of trading today. Volume and value traded were 22.80 percent and 20.64 percent below yesterday's levels respectively. 

SEPLAT for dual listing on LSE and NSE

… announces IPO

Seplat Petroleum Development Company PLC has announced its intention to

float its shares on both the London Stock Exchange (“LSE”) and the Nigerian Stock Exchange.

The Company has announced that it intends to apply for admission of its ordinary shares to the standard listing segment of the Financial Conduct Authority to trade on the LSE’s and to the Official Trading List of the NSE.

A successful listing will make SEPLAT the first Nigerian oil and gas company to have its ordinary shares dual listed on both the LSE and the NSE.

SEPLAT was founded in 2009 by Shebah Petroleum Development Company Limited and Platform Petroleum (Joint Ventures) Limited for the purpose of investing in Nigerian oil and gas opportunities. Maurel & Prom, a French independent oil company, subsequently acquired a 45 per cent equity interest in SEPLAT; this interest was later spun-off to form Maurel & Prom Nigeria S.A (now Maurel & Prom International).

In July 2010, SEPLAT acquired a 45 per cent participating interest in, and was appointed operator of, a portfolio of three onshore producing oil mining leases (OMLs 4, 38 and 41) located in the Niger Delta.

In June 2013, the Company entered into an agreement for the acquisition of a 40 per cent participating interest in the Umuseti/Igbuku marginal field area located within OPL 283 in the Niger Delta. SEPLAT is one of the leading indigenous oil and gas operators in Nigeria with average gross operated oil production of 51,400 barrels per day (“bpd”) as at 31 December 2013 having grown from 13,900bpd in August 2010.

The Company’s average gross gas production in 2013 was 99 million standard cubic feet per day (“MMscfd”). SEPLAT is targeting gross operated oil production from its existing assets of 85 Mbpd by the end of 2016.

The company noted in its announcement that it “intends to use the net proceeds of the Global Offer as follows: (i) US$[48] million to repay in full all outstanding amounts under its shareholder loan from MPI S.A. (“MPI”); and (ii) the remainder of the net proceeds to be available for acquiring and developing new acquisitions, and/or pay down any additional debt raised in connection therewith, of both onshore and shallow offshore acreages, assets or joint venture

(“JV”) farm-ins. The main source of acquisitions is expected to come from divestitures by various international oil companies (“IOC”)”.

MTN revenues larger than Dangote shows equities fail to track economy

Dangote Cement, the largest company listed on the Nigerian Stock Exchange (NSE) is a behemoth in the Nigerian economy, controlling 70 percent of the fast growing domestic cement market. However when placed next to the unlisted Nigerian arm of South African telecommunications group MTN, Dangote Cement pales by comparison.

Dangote Cements nine month revenues of N288.98 bn and projected FY 2013 revenues of N364.11 billion (Morgan capital), is dwarfed by MTN, which last week reported full year revenues of N793.6 billion for its Nigerian operations.

The lack of listings on the NSE by companies in the telecom, Agriculture, power and oil and gas sectors – that make up the bulk of Nigerian GDP - mean that the stock exchange with a market capitalization of $76 billion (equities) is failing to adequately track the economy.

This has left investors exposed by a lack of diversification and pension funds fearing the possibility of a bubble in stocks in two to three years.

 “The upstream companies have access to funds from various sources, so they do not therefore want to expose themselves to the regulatory and potential equity dilution that could come from listing on the Nigeria Stock Exchange,” said Oladiran Ajayi, energy expert and a senior associate with Templars law firm.

“To encourage listing, the government can either put some more favourable fiscal and regulatory incentives to companies that list or make it a requirement for companies in certain industries to list.”

The Nigerian Stock Exchange’s benchmark index soared 47 percent in 2013 beating returns posted by major Africa equity gauges. Most of the rally was powered by gains in Dangote Cement and Bank stocks which combined make up over 50 percent of total stock market capitalization.

The NSE, with a $1 trillion market capitalization target by 2016, is failing in its attempts to bring IPOs to the exchange, managing to attract only three listings in 2013 (UPDC REIT, Computer Warehouse Group and Infinity).

Listing a company and maintaining listings is very expensive in Nigeria compared to other African exchanges, analysts say. In Kenya for example, new listings pay a lower corporate tax rate of 20 per cent for five years.

“What we need is an enabling environment for listing in Nigeria i.e. easy access for foreign investors to invest and repatriate funds, an efficient trading and settlement system, tax incentives.When the FG/regulators impose restrictions on companies, it increases the cost of doing business which is already high,” said Tairat Tijani, head of debt capital markets, FBN Capital.

The average value of stocks traded daily on the NSE was equivalent to N234billion ($1.4 billion) in the fourth quarter of 2013, according to data from the Central Bank of Nigeria (CBN).Total equity capitalization was 27.8 percent of GDP, compared to 153 percent in South Africa.

The price-to-earnings (P/E) ratio of stocks included in the benchmark index is currently at 13.81 xs compared to 20.05 xs for major African markets, suggesting the overall Nigerian equity basket is still cheap according to data from research firm Meristem Securities.

Stocks may not remain cheap for long however as Pension and Asset managers fret about the possibility of a dearth of investible assets leading to bubbles. The low free float in most listed Nigerian stocks also suggests that a modest movement by PFAs towards increased equities allocation would have an outsized impact on stock prices.

“Some equity valuations show a lack of depth in the markets,” said Yvonne Ike, CEO West Africa, at investment bank Renaissance Capital, at a recent investment conference.

“What we need to do is improve the product offering,” she said.