The shareholders’ fund of MRS Oil Nigeria Plc could increase hit N23.23 billion after a bonus issue as the company recorded a pre-tax loss brought on by receding sales and rising interest expense.
The downstream oil and gas giant has proposed to issue one new equity bonus share for every five existing shares subject to approval of the appropriate authorities.
The proposal shall be cleared in the annual general meeting to be held on August 1, 2018, MRS said in a filing to the Nigerian Stock Exchange on Monday.
MRS has 254 million ordinary shares outstanding at N0.50. When the number of shares is multiplied by nominal shares (N0.50), it will translate to ordinary share capital of N127 million in the balance sheet at the moment.
After the bonus issue, the number of shares will increase to 304 million at N0.50 each. When the number of shares is multiplied by the nominal value of shares, it will translate to N152 million ordinary share capitals.
Since a bonus issue is a recapitalization of reserve, and ordinary share capital is a component of free reserve, shareholders’ fund will hit N23.23 billion after the bonus issue, from N22.16 billion the previous year.
Bonus issues are given to shareholders when companies are short of cash and shareholders expect a regular income. Shareholders may sell the bonus shares and meet their liquidity needs.
Downstream oil and gas firms in Africa’s most populous nation had caveat that the tough and unpredictable macroeconomic environment could hinder them from rewarding shareholders.
The delay in payment of subsidy arrears have hindered firms from paying interest on loans borrowed from bank while a change in the current template that saw NNPC become sole importer of petroleum products deal a blow on revenue.
“NNPC is the sole importer and they are just getting products from the corporation, said an industry expert who doesn’t want his name mentioned because of the sensitivity of the matter.
“This is because import maintained that they cannot sell at the current N145 per litre when landing costs is N176,” the industry expert.
MRS Oil was hard hit by the aforementioned challenges as sales dipped by 2.32 percent to N107.08 billion in December 2017 from N109.03 billion the previous year.
Drilling down the figures shows income from Premium Motor Spirit (PMS), which make up 58.59 perccent of total revenue, fell by 16.20 percent to N62.64 billion in the period under review.
The combination of huge finance cost and rising operating expenses resulted in a 96.92 percent drop in operating profit to N101.21 million in December 2017 from N3.28 billion the previous year.
MRS Oil recorded a loss before tax of N996.61 million in the period under review from a profit position of N2.28 billion the previous year as a finance cost of N1.21 billion swallowed all of operating income.
Perhaps more worrisome is the company’s 0.08 times interest ratio that is lower than the generally acceptable average of 1.50 times earnings. This means the MRS Oil’s ability to meet interest expenses may be questionable while it is not generating sufficient cash flows.
The downstream oil and gas giant recorded a profit after tax of N1.38 billion as at December 2017, thanks to a tax credit of N2.38 billion.
MRS Oil’s share price closed at N27 as of 2:00pm close of trading in Lagos, valuing it at N6.85 billion.
BALA AUGIE
