NNPC plans first oil assets IPO for 2018

It has now emerged that before the next general elections in 2019, the Muhammadu Buhari administration plans to sell key oil assets to the public, Emmanuel Kachikwu, Petroleum Resources Minister of State and managing director, Nigerian National Petroleum Corporation (NNPC), revealed yesterday in far away Abu Dhabi, United Arab Emirate (UAE).

Also, Financial Times reports that Nigeria is planning to make a comeback on international bond market two years after its last sale of debt, as Africa’s largest oil producer tries to plug an $11bn budget deficit.

However, during the time the country stayed away,  cost of borrowing in dollars has surged for developing countries, making any bond sale a test of investor willingness to fund emerging markets.

But Kachikwu said the action will be the country’s first initial public offering (IPO) of assets owned by its national oil company, scheduled for a major reforms and is expected to happen in 2018.

“It’s inevitable,” Kachikwu, said on Tuesday in an interview in Abu Dhabi. “Part of the cleaning up process that we’re doing is to prepare for that.”

“Africa’s top oil producer plans to sell shares in its refining and distribution business and “select” exploration and production assets to the public,” he said.

BusinessDay had reported on Monday that while oil producers like Saudi Arabia are moving ahead with reforms of the sector in response to a slump in oil prices, Nigeria’s attempts at reforms remain stalled.

NNPC, as the state oil company is known, manages Nigeria’s stakes in joint ventures with international oil companies that pump the countries crude.

It also operates refineries and a distribution network of depots and pipelines across the country of about 180 million people.

Selling stakes in inefficient government owned oil operations would be welcome by investors.

Data from the NNPC shows that capacity utilisation for Nigeria’s 4 refineries fell to zero (0) percent in October 2015, down from 2 percent in September.

Benchmark Brent crude closed at $43 a barrel on the day of the last OPEC meeting on Dec. 4, and was trading at $30.98 a barrel at 9:12 a.m. on Tuesday in London.

No OPEC members, including Saudi Arabia, are happy with the slide in prices since the group’s last meeting in December, Kachikwu said at the conference in Abu Dhabi.

After the lack of consensus at the December meeting, OPEC ministers knew oil prices would fall, Kachikwu said. High-cost shale oil producers are showing resilience to low prices and “are becoming a constant equation in the oil dynamics,” he said.

“I certainly hope that it doesn’t go below $30 for the sake and survival of everybody” Kachikwu said. “My perception is that we will see it get worse before it gets better.” Oil is seen ending the year at $40 to $50 a barrel, he said.

OPEC, which supplies about 40 percent of the world’s oil, effectively abandoned output limits in December, potentially worsening a glut created after producers from the U.S. to Russia and Saudi Arabia pumped more than demand warranted.

Led by Saudi Arabia, Gulf Arab producers have poured cold water on previous calls for early meetings by cash-strapped members such as Venezuela and Algeria, saying that output cuts won’t work without the participation of big non-OPEC producers.

OPEC can’t change its policy because of low prices since the group’s strategy is working and there was a “major reduction in yearly increase from non-OPEC,” Suhail Al Mazrouei, energy minister of the United Arab Emirates, said at the same conference in Abu Dhabi on Tuesday.

Last year Ghana had to offer 10 per cent to borrow $1bn in 15-year debt, far higher than expected, while Iraq, Kurdistan and Pakistan were forced to rethink borrowing plans as a slowdown in China, a rise in official US borrowing costs and falling commodity prices diminished demand for their bonds.

Undeterred, Africa’s largest economy is finalising plans for an investor roadshow by the end of March, Kemi Adeosun, finance minister, told the Financial Times.

“We’re looking to test the eurobond market,” she said. “We think there’s appetite. We’re finalising plans for a non-deal roadshow in the first quarter.”

If successful, it will be the first issuance of external debt by Nigeria since July 2013, when it raised $500m of five-year bonds and $500m of 10-year bonds, at yields of 5.38 per cent and 6.63 per cent respectively.

Prices for both have since fallen, pushing the yields to 8.5 per cent and 6.81 per cent. Foreign investment in EM bonds and equities has dropped to the lowest levels since the financial crisis.

Adeosun did not specify the size or maturity of the eurobond but said the possible return to international capital markets would be one of several ways Nigeria would borrow externally this year.

Last month Muhammadu Buhari, president, said Nigeria’s deficit would be funded partly by domestic bonds and partly from borrowing abroad.

“We’ve decided to divide the deficit down the middle,” Adeosun said. “We recognise the need to stimulate the economy and not crowd out the private sector.”

She stressed the need not to increase interest rates by “borrowing too much domestically”.

PATRICK ATUANYA with agency reports