Oando’s debt service capacity crashes despite refinancing

Oando Nigeria Plc is encumbered with a debt burden that is above the industry average, leading to a drop in the ability of the oil giant to service debt even though the company has substantially reduced the debt component of its balance sheet.

 Oando’s interest coverage ratio of 0.96 times in the first quarter of the year is below the industry average, which is 1.50 times.

Interest coverage ratio calculates a company’s ability to service interest on its debt, obtained from dividing a company’s earnings before interest and taxes (EBIT) by the company’s interest expenses during the period.

Low interest coverage ratio means Oando’s N8.39 million net finance cost couldn’t cover the whole of operating profit of N7.62 billion, resulting in a loss before tax of N647.04 million.

However, the combination of income tax credit on the acquisition of new assets and profit from the sale of significant investment resulted in a profit after tax of N1.71 billion as of March 2017.

Interest on borrowings dipped by 24.24 percent to N8.40 billion in the period under review; total debt in the balance sheet stood dropped 2.59% from N343 billion recorded the previous year, leaving total debt to equity ratio (D/E) at 167.84 percent in the period review. D/E was 178.63 percent the previous year. This means there is a reduction debt in the capital structure of the firm.

Oando got $815 million of commitments from banks to finance the acquisition of the ConocoPhillips Nigeria oil and gas business for $1.50 billion in mid-2014.

A sharp drop in the price of oil of oil, currency volatility and attacks on oil facilities in the Niger Delta region had hit Oando’s cash flows as revenues were lost.

The company has arranged an N108billion debt restructure with 11 Nigerian Banks to refinance its debt at lower interest rates. There was a N156 billion deleveraging of the balance sheet through Oando Energy Service (OES).

 Oando concluded the sale of its interests in OMLs 125 and 134 to Operators for cash proceeds of $5.5m and assumption of $88.5m in cash call liabilities due to the joint ventures. It concluded the sale of Alausa Power Plant for a transaction price of N4.6 billion.

The company’s production decreased to 3.4 MMboe (average 38,125, boe/day) in Q1 2017 compared to 4.5 MMboe (average 49,365 boe/day) in Q1 2016.

Oando share price dropped 9.24 percent to close at N9 as of Tuesday, valuing the company at N108.31 billion.

BALA AUGIE