Energy firms seen raising equity capital to moderate debt

Energy firms active in the oil and gas and power sector are seen approaching the Nigerian capital markets in the near future to raise equity to help pay down expensive debt incurred during asset purchases.

“Many energy companies will seek equity funding to moderate debt that asset buyers have on their balance sheets,” said Austin Avuru, CEO Seplat Plc, at the capital markets solicitors association (CMSA) annual business event held in Lagos yesterday.

“In the past five years, $15 billion in asset acquisition deals have occurred in Nigeria’s oil and gas and power sector, and 80 percent of them were done by debt,” said Avuru, whose Seplat was the first major Nigerian energy company to have a dual listing in Lagos and London,

The Seplat IPO raised $535 million, part of which was used to pay down debts.

Nigerian firms operating in marginal fields divested by International Oil Companies (IOCs), and those seeking to acquire new blocks which IOCs are looking to sell-off are the most likely to approach the stock markets to follow Seplat’s lead.

The power companies that are not yet listed may come to the market in a few years, analysts say.

“The eleven Distribution Companies (Discos), should be quoted in five years,” Albert Okumagba, CEO of investment firm BGL Plc, said at the event.

“In the near term, we will see many more Seplats come to the market,” said Okumagba.

The need to raise capital is being increasingly fed by the rising transactions in the energy sector.

Before the end of June 2015, there may be new deals in the sector, approaching $15 billion in value, according to Okumagba.

France’s Total SA, Europe’s second largest oil company, said on Tuesday it had put its Usan deepwater oil field, located in the Nigeria Oil Prospecting Lease (OML) 138 which may be worth $2.5 billion, up for sale.

Royal Dutch Shell Plc, Europe’s largest oil company, said in August it was advancing plans to sell four fields in Nigeria to meet a $15 billion asset-sales plan.

Nigeria’s deepening financial markets are also helping to influence energy firm’s decisions to list in the country.

Seplats IPO helped to show the way, with $230 million or 48 percent of the total funds raised coming from Nigeria.

“The liquidity is here,” said Oscar Onyema, CEO of the Nigerian Stock Exchange (NSE).

“Sixty-five percent of Seplat’s trading is done in Nigeria. Now, other marginal oil firms are looking at us seriously.”

The NSE has a total market capitalisation of $134 billion, made up of $82 billion of equity, $32 billion of fixed income and $20 billion in Exchange Traded Funds (ETFs), equivalent to 26 percent of GDP.

The daily trading value increased by 4.75 percent and 58 percent in 2012 and 2013 to $17.5 million and $26 million respectively.

In 2014, trading values have averaged $27.6 million daily, according to Onyema.

A rise in confidence in the NSE reflects confidence in Nigeria’s private sector, Avuru said.

“The deepening of the private sector would have been a mismatch without a good stock market to provide avenues for risk takers to seek equity funding,” said Avuru.

PATRICK ATUANYA & EDOZIE IFEBI