The sharp slow down in Nigerian large ticket oil and gas mergers and acquisitions (M&A), and equity/debt capital markets transactions is masking some deal activity targeted at consumer focused midsized firms.
Investment bankers have seen deals in Nigeria fall to the lowest level in three years, as macro uncertainty; plunging oil prices and pressure from foreign-exchange restrictions imposed by the Central Bank (CBN) curtail appetite.
However, some $1 billion in mostly private equity deals have taken place so far this year, data compiled by BusinessDay show: including MTN Nigeria’s takeover of Visa Phone in a deal sources say is valued at about $300 million, Coca-Cola’s acquisition of a 40 percent stake in Chi valued at about $400 million and Olams purchase of BUA group’s Nigerian milling assets for $275 million.
“If we can see investors that are really long-term focused, then some deals can be closed even at current macroeconomic conditions,” said Abiodun Keripe, head of research and strategy at Elixir Investment Partners Limited, in response to questions.
“As long as investors are unable to see beyond the mist covering the current macroeconomic environment, and articulate a clearer outlook, deal participation will remain very low.”
In 2014, Seplat Ltd.’s N107.6 billion ($541 million) dual listing on the London and Nigerian Stock Exchanges was the largest IPO in Africa, according to investment banking (IB) data from Thompson Reuters Deals intelligence.
By 2015, Nigeria had fallen off the list of top five African equity capital markets (ECM) deals; Thompson Reuter’s IB deals data show.
The Nigerian Stock Exchange (NSE) recorded just one initial public offering (IPO) in 2015, down from six equity listings in 2014, data from the bourse shows.
The Nigerian economy grew at the slowest pace since 1999 in the third quarter of 2015 as the government and companies struggled to deal with a more than 70 percent drop in the price of crude, the biggest since July 2014, which has cut dollar inflows from the commodity that accounts for 95 percent of exports.
The naira traded as low as 306 per dollar on the black market last week, after the Nigerian Central Bank resisted plans to devalue the currency at its last meeting on Jan. 26, despite plunging oil prices.
Companies are shelving investment plans and shunning big ticket deals as the naira falls to record lows and 2016 growth is forecast at 3.25 per cent, down from an average 6.8 per cent growth in the decade to 2014.
“Despite challenging economic times, which are felt heavily in Nigeria, 2016 will be pivotal as companies will be looking to reassess their strategies, which may include divesting of non-core businesses,” Darrell McGraw, PwC Nigeria Capital Markets Partner, says.
“This will create an opportunity for cash-rich investors, or other corporates to tap into the local debt markets, to raise domestic currency bonds. Until relative certainty returns to the currency markets, the popularity of US dollar denominated bonds is likely to taper.”
Nigerian companies sold some $5 billion in hard currency bonds between 2007 and 2014, according to Thomson Reuter’s data. Debt Issuances have mostly dried up however, since some $2 billion was raised in 2014 by financial institutions shoring up their balance sheets, after the CBN imposed tighter restrictions on banks’ foreign currency borrowing. The Nigerian Stock Exchange’s benchmark equity index is down 16.50 percent this year, one of the worst performers globally.
Between 2012 and 2014, mega deals were the norm such as Seplat Petroleum Development Company 2014, with IPO, which valued the oil firm at $1.91 billion.
In September 2013, Dangote Industries Limited said it had agreed on a $3.3 billion loan with 12 Nigerian and foreign lenders to build a 650,000 barrel-per-day refinery, as well as a petrochemical and fertilizer complex, costing a total of $9 billion.
Nigerian energy firm, Oando Plc in 2014 said it secured $1.63 billion to acquire the assets of ConocoPhillips in the country. The slump in oil prices however, has seen firms like Shoreline Group, a Nigerian oil producer, abandoning plans to issue $500 million of Eurobonds this year.
Investors are moving into midsized Nigerian firms, attracted by the potential growth from the demographic dividend in the country, which has over 170 million people, and an income per capita that has doubled to $3,000 in five years.
Even though assets have fallen a lot in Nigeria and some deals are happening, more catalysts like corporate refinancing of oil debts with lenders, and addressing the FX issue may be needed to markedly boost deal making tempo in 2016.
“While assets appear to be relatively cheaper at the current valuation, the critical question remains, “are they likely to get cheaper amidst uncertainties about fiscal and monetary policies? It all borders on confidence and valuation after adjusting for risks.
“We believe the issues of policy uncertainty and absence of a liberalised FX market are basic issues that must be addressed for Nigerian assets to fully regain their attractiveness. We believe that these twin issues account for a significant discount on Nigerian assets and this is expected to continue to affect relative valuation on risk-adjusted basis,” Olutola Oni, head of research at investment firm, WSTC financial services Ltd, said in response to questions.
PATRICK ATUANYA
Join BusinessDay whatsapp Channel, to stay up to date
Open In Whatsapp
