Listing IJVs could boost stock market cap by $10bn
Nigeria’s stock market could see an increase in market capitalisation to the tune of $10 billion as a result of incorporating the oil Joint Ventures (JV) and listing their assets, BusinessDay findings show.
Currently, the International Oil Companies (IOCs) account for 43.4 percent of the total oil production in Nigeria as a group while NNPC’s oil share accounts for 39.1 percent making it the single biggest resource holder in the Nigerian oil and gas sector.
In the 2 years from 2012 – 2014, there were eight IOC asset divestments valued at $6.66bn which was the acquisition cost of minority stakes in certain Nigerian JV’s.
Analysts say in the transition, from UJV to IJV’s, the opportunity exists for the FGN to monetise a significant amount of their stake in the entity.
Using the Saudi Aramco valuation of $2 trillion as a rough benchmark, (Nigeria’s reserves are a fifth of Saudi Arabia), and historical Nigerian transaction prices, the FGN could easily raise more than $6 bn (inside 6months) by listing a fraction of its UJV – IJV assets.
“To properly contextualise this, $6bn is equal to ten times the entire budgeted (2017) CAPEX program for the Power Housing and Works Ministry in Nigeria,” an oil industry source speaking to Businessday anonymously said.
“Assuming 10% growth, that one-off sum could fund the ministry for over 6years.”
Sources tell Businessday the listing should be easy to pull off as the pool of available investors for listed companies, is much larger today than at any time in the past and includes: Insurance Companies, Fund Managers, Pension Funds, retail Investors and Foreign Portfolio Investors.
Listing as little as 5 percent of shares of the IJVs could push the value of Nigeria’s stock market to over $45bn from about $35.6bn (N12.82 trillion) today (based on an exchange rate of N360/$).
Experts tell BusinessDay that the initial structure should be to first incorporate a limited liability company jointly owned by unincorporated joint venture (UJV) partners.
Then a transfer of all the assets of the UJV partners to the Limited company, in the proportion of their holdings should be established.
Afterwards, the shares should be offered to Nigerians transforming it into a private or Public PLC.
NNPC staff could get preference shares. Private investors could also buy shares in the new entity or the shares could be listed on the Nigerian Stock Exchange (NSE), or even in a foreign stock exchange.
Chuks Nwani, an energy lawyer told BusinessDay by phone that political will is critical to achieve this.
“It’s been what we have been advocating for a long time but the political will has been lacking,” Nwani said.
Besides political will, industry stakeholders say it will require untangling legal knots, resolving conflicts with the trade unions over pricing, and bringing market based pricing and efficiency to the sector.
It will also remove rent- seeking behaviour of government officials.
“Nigerian politicians, to the degree that they have any ideology, are instinctively statist and generations have grown up with government ownership of most of Nigerian industry. The Telecoms sector was successfully “liberated”, and this led to stupendous growth,” said a top source in the oil and gas sector.
Another major oil producing country that has successfully sold assets to the public is Russia.
After the fall of the Soviet Union, Russia was forced to manage the huge and inefficient state enterprises inherited from the socialist Soviet economy.
To check concentration of state assets in the hands of the mafia or bureaucrats, Russia jettisoned open sale for a voucher program, a scheme where citizens are given or can inexpensively buy a book of vouchers that represent potential shares in any state-owned company, which brought thousands of investors into the market.
From 1992 to 1994, ownership of 15,000 firms was transferred from state control through the voucher program.
Among them was Gazprom, formerly the Soviet Ministry of Gas Industry, Russia’s biggest company, after a 2008 recapitalisation became a publicly owned company in 1992.
It started distributing ordinary stock to Russian citizens under a voucher privatisation programme.
By 1994, 33 percent of Gazprom’s ordinary stock was owned by over 700,000 members of the Russian public, and 15 percent was preferentially allotted to Gazprom staff.
In 1997, the company had its first Eurobond issue of US$2.5 billion. It is now 50 percent owned by the Russian Government, supplies 30 percent of the gas requirements of Europe, and recently signed a $400bn, 30yr contract to supply China with 38bn scuf of gas annually.
Another model for the incorporation of JVs is Saudi Arabia, with a current reserve base of more than 250 billion barrels.
Analysts say any argument for the status quo is not persuasive as NNPC is neither a transparent nor an efficient enterprise.
In December 2011, a forensic report conducted by KPMG on the NNPC, detailed lack of transparency, and illegal deductions of funds belonging to the Federal Government, and Federal Inland Revenue Service (FIRS).
The auditors found that between 2007 and 2009 alone, the NNPC over-deducted funds in subsidy claims to the tune of N28.5 billion.
Each month, NNPC’s monthly operations and financials report huge deficits. Meanwhile, the corporation engages in profitable ventures. Every year, it awards crude term lifting contracts, allegedly fraught with abuse.
Last month, Ibe Kachikwu, minister of state for petroleum resources wrote a memo to the president accusing the NNPC GMD Maikanti Baru of approving contracts without following due process.
One of the major contracts allegedly awarded by Baru without the input of the NNPC board includes $10 billion in crude term contracts.
Analysts say a considerable amount of money is lost through corruption and if IJVs are incorporated and listed it could bring millions into the Federation Account.
For the transaction to go smoothly analysts say an innovative legal framework must emanate from the Presidency / Federal Executive Council to underpin the sale.
“Pricing cannot also be perceived as a giveaway, or Trade Unions will scream. So it should be market based and if possible preferential treatment be made for Nigerians,” said a second industry source.
“In order to succeed, strict timelines and targets must be set, responsibility apportioned and specific deliverables must be owned by specific individuals.”
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