Nigeria is prioritising engagement with banks to securitise five years of dividends from the Nigeria LNG Limited (NLNG) and turn this into as much as $7 billion to ease the country’s acute foreign exchange shortage instead of going for quick sale of a portion of its equity in oil and gas firms.
As part of raising the much-needed FX, the government is faced with a plethora of options including selling down its holding in the oil joint ventures, selling down part of its equity in the NLNG, securitisation of future NLNG dividend and future sale of crude oil.
The government has prioritised the securitisation of NLNG dividend over the next five years as well as the future sale of crude oil under an arrangement with Afreximbank, which is based in Cairo. This is because it was considered that the securitisation of dividends will involve a shorter waiting time.
“The government is considering all options but in the end, you have to prioritise speed of delivery as there is a desperate need for the proceeds to come in a short period of time and even then there will be scope to adopt other options later,” one government official said.
Many Nigerians prefer outright sale of equity as securitisation means taking more debt and worsening the debt service burden.
In addition, it is not clear if the federal government will be able to cope with its huge liabilities after the NLNG dividends are taken out from its annual revenue collection in the next five years.
As the debate rages on how the government should be raising the dollar flows required, there is a parallel debate on how the proceeds should be applied once received.
There is about $6.7 billion in FX backlog that must be cleared but business leaders say the government should clear a part of this now and structure the balance with the banks so there can be cash to fund fresh import needs.
The managing director of a leading manufacturing firm said: “Today you cannot open a letter of credit unless you are cash-backed. If this situation continues for another two months, shelves will be drying up across Nigeria and that can mean the onset of social unrest.”
Nigeria is facing an acute shortage of FX and business leaders are warning that if the country does not see significant FX inflow, market and store shelves will begin emptying out in two months.
According to investors and analysts, while it is good for the government to seek to securitise future earnings from gas and oil sale, Nigeria should first work to win trust of investors abroad by allowing oil companies to sell their FX directly into the market to immediately enhance liquidity and market transparency. As it is today, the oil companies sell their foreign exchange to the central bank.
Kelvin Emmanuel, CEO of Dairy Hills Limited, said the federal government is basically securitising NLNG’s export dividend through its 49 percent shareholding in the joint venture in exchange for immediate FX it requires to stabilise the FX markets.
He said: “The loan will be syndicated through a collection of international banks acting as external asset managers to the apex bank, and the gas deliveries will be used in the amortisation of principal and interest over a period of time.
Read also: FG to securitise NLNG dividends for $7bn cash
“Beyond the structure of this deal, and while it will provide a temporary reprieve to the markets, I think it’s time to address long-term structural and functional issues required to stabilise the naira and punish speculators.”
Amortisation is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time. Concerning a loan, amortisation focuses on spreading out loan payments over time. When applied to an asset, amortisation is similar to depreciation.
“This is a very welcomed development, as the minister is leveraging the nation’s already determined future disposable income at our disposal, which if diligently managed in the present will help alleviate the shortage of forex in the business economy and strengthen the naira in the short run,” said Muyiwa Adekoya, an energy professional.
With regards to Afreximbank’s $3 billion loan, he said the government’s collaboration with Standard Chartered is a move in the right direction “as the bank is a depositor’s bank. Which means that they can actually raise the needed cash for when and how it will be needed by the Federal government”.
“This sets her apart from banks such as Afrexim, who have to raise these funds from other depositor’s institutions such as Standard Chartered,” he said.
