If there is any major company in Nigeria gathering negative PR at the moment, it is probably not MTN. Oando is it.
Apart from the fact that the company has not released its full year 2015 financial result, the latest move by the company might rather worry its shareholders. As against the conventional practice and strategy devised when a company had taken too much leverage, Oando is taken in more debt to get out of debt.
Just yesterday, the company and a consortium of nine banks signed medium term syndicated loan agreement for a sum of NGN 94.6 billion. The loan agreement is been spearheaded by Access Bank, the same company that played a major role in the financing of the Fourth Mainland Bridge.
The five-year Medium Term Note, MTN borrowed at the Nigeria Interbank Offered Rate, NIBOR plus 200 basis points, would be used by Oando to meet its financial obligations in the low crude oil price environment.
To justify the company’s decision, Wale Tinubu, Oando’s group CEO said the move is “a bid to return to profitability in 2016, I am happy to announce the successful completion of the restructuring our overall debt profile into a N94.6 billion Medium Term, five-year consolidated facility, with a three-year moratorium on principal. This is the pivotal leg in our group restructuring plan of growth; via the upstream business, deleverage; via the disposal of $350 million in assets’ value in 2016, and our return to profitability in 2016, driven by our dollar earning oil export and trading activities”
One part of his defense that is quite unsettling was when he said that “With the upturn in global oil prices to levels above $50 per barrel, we now look forward to the successes of 2016, having ridden out the storm”. Without turning logic on its head, the global oil market is far from recovery. The USD 49-USD50 price fluctuation of the Brent Crude is due to two temporarily-spontaneous events that can fizzle out any moment and the oil market goes back on a free fall to somewhere around USD 35 per barrel.
First is Nigeria’s challenges with vandalisation of oil installations in the Niger Delta by criminal elements in the region. Second is the Canadian fire that disrupted production.Evacuation of workers of ConocoPhillips and CNOOC’s production subsidiaries has made Canada to lost close to 30% of its crude oil output. Concerted efforts are underway to quell both problems. Therefore Oando cannot continue to bet on these scenarios to take in more debt.
Is this loan a move to shore up the company’s balance sheet and paint a positive outlook, probably yes!
Shares of Oando currently trades at NGN 6.15 per share, the stock has fallen by about -64.5% in the last 12 months.
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