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N6.1trn debt: Banks begin seizure of oil firms’ assets

Commercial banks in Nigeria, at the weekend, began descending on heavy debtors, mainly oil firms with history of non-performing loans, as fear of recapitalisation and mergers continue to rock the money market sector.

Some of the lenders, New Telegraph learnt, have sent correspondences to oil firms, marginal field operators and downstream operators over their financial asset recovery plan said to be about N6.125 trillion.

The debts have partly heightened the Central Bank of Nigeria (CBN)’s recapitalisation plan for banks.

In 2018 alone, according to Financial Stability Report of CBN, N1.235 trillion was added to the oil sector’s debt profile, which stood at N4.89 trillion as at 2016. The 2018 figure is 7.25 per cent of the total exposure by banks in the year.

As at the end of December 2016, loans to the oil and gas sector constituted 30.02 per cent of the gross loan portfolio of the nation’s banking system as credit to that sector grew from N4.51 trillion to N4.89 trillion, according to Financial Stability Report of the CBN.

Collateral takeover, a management staff of one the marginal field oil firms told this newspaper at the weekend, came up mainly in the correspondence sent to his firm.

“Oil firms form major part of their (banks’) heavy debtors’ list and they have written some of us with non-performing loans to prepare for the worst,” he said after he and his company were assured of anonymity.

The banks’ exposure in terms of loan facilities to the oil sector is, according to the CBN document, about N6.1 trillion debts.

After becoming key players in the nation’s oil and gas industry in recent years, indigenous firms are now struggling to maintain the assets they acquired through Federal Government’s marginal field programme and recent divestments by oil majors.

Over 130 oil blocs are in the control of indigenous operators, who were awarded some 50 marginal blocs through discretionary allocations in the 1990s, another 24 through marginal fields bidding round in 2003 and 60 more blocs through conventional bidding rounds in 2005 and 2007, according to the Oxford Business Group.

CBN’s planned recapitalisation programme may, findings by New Telegraph showed, trigger a fresh wave of mergers and acquisitions in the banking industry this year.

According to analysts, latest official data indicates that the country’s banking industry is in a strong position as Capital Adequacy Ratio (CAR) increased from 10.2 per cent in December 2017 to 15.5 per cent in September 2019 and the percentage of Non- Performing Loans (NPLs) declined from its high of 14.7 per cent in January 2017 to under seven per cent as at October 2019.

The recent spate of regulatory measures occasioned by the apex bank’s efforts to get deposit money banks to increase lending to the private sector, as well as competition from Fintech firms, are negatively impacting lenders’ earnings.

In fact, in his Lagos Business School (LBS) November 2019 Executive Breakfast Presentation, the Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, predicted “likely consolidation of the banking industry and increase in M&A deals.”

He noted that over N375 billion was raised from commercial papers by non-bank financial institutions as at November last year, predicting that “formalisation of crowd funding” would further increase pressure on bank earnings as “SMEs, which have, in recent times, been the focus of banks (especially Tier-2 banks), can now have alternative sources of funds aside bank loans.”

Rewane made his presentation in November last year amid widespread speculation that measures introduced by CBN to get banks to reduce their investments in fixed income instruments such as treasury bills (yields are now in single digits) and to channel the funds into lending to the private sector, would hurt lenders’ profits. However, since Rewane made the M&A forecast for the industry, the business environment has become even tougher for the banks.

Meanwhile, international oil companies like Total, Chevron and ExxonMobil have expressed preference for foreign banks in the execution of their multi-billion dollar assets stake in Nigeria.

A French super major, Total, is seeking to sell its 12.5 per cent stake in Oil Mining Lease (OML) 118, a major deepwater oilfield off the coast of Nigeria, industry and banking sources said, in an effort to adjust the energy company’s Africa portfolio amid a broad expansion.

Investment bank, Rothschild, is running the sale process for Total, the sources said.

The stake in OML 118, which is located some 120 kilometers (75 miles) off   the Niger Delta, is valued up to $750 million, according to two of the sources.

Energy giant, Chevron, like Total, has also launched the sale of its stakes in two Nigerian offshore oil and gas blocs, a document, which showed this, added that the California-based company had hired Scotiabank to run the sale process.

A Chevron spokesman confirmed the sale process.

Chevron is offering its 40 per cent stake in the shallow-water OML 86 and OML 88, which produce approximately 6,200 barrels of oil equivalent per day, the document says.

The sale is also part of a broader retreat by international oil companies from Nigerian oil and gas fields that have been plagued by pipeline theft as well as uncertainty over the West African country’s tax regime.

SOURCE: NewTelegraph