Seplat Petroleum Development Company, an indigenous oil and gas firm has priced its offering of $350 million in aggregate principal amount of 9.25 percent senior notes due 2023 as it seeks to retire some of its existing debt.
Seplat said earlier it plans to tap the international debt market for funding with a view to managing its dollar cash flow repayment.
“Seplat is trying to refinance its floating debt instrument with fixed debt instrument with the expectation that global interest rates will remain attractive in the long and medium term,” said Ayodeji Ebo managing director and CEO of Afrinvest Securities Limited.
Analysts say the company wants to be sure about how much to set aside for interest rate payments.
A fixed rate bond is a type of debt instrument with a fixed coupon (interest) rate.
By contrast, a floating interest rate, also known as a variable or adjustable rate, refers to any type of debt instrument that does not have a fixed rate of interest over the life of the instrument.
The 2017 audited financial statement of the company shows total debt (both short term and long term) stood at N176.14 billion ($578.16 million) as against N206.55 billion ($676.12 million) the previous year.
On 31 December 2014, Seplat signed a N518.15 billion ($1.7.23 billion) debt refinancing package, made up of the following facilities:
N214.23 billion ($700.15 million) seven year term loan with an ability to stretch it to N427 billion ($1.43 billion) contingent on a qualifying acquisition with a consortium of five local banks. This facility has a seven year maturity period at interest Libor of 8.50 percent.
N91.12 billion ($300.45 million) three year corporate revolving loan primarily to manage working capital requirements with a consortium of eight international banks. This facility has a three year maturity period
The corporate Eurobond market in Africa’s most populous nation has been busy in the last two years as companies take advantage of the favourable global interest rate to raise money with a view to strengthening their operations.
A total of $1.30 billion of Eurobonds have been issued by Nigerian firms in the last 2 years.
Access Bank Plc raised US$300 million via a Eurobond as a coupon rate of 10.50 due in 2021.
Zenith Bank Plc, the second largest lender by market value raised a bond of $500 million at a rate of 7.38 percent due in 2022.
United Bank for Africa (UBA) Plc, the pan Africa lender raised $500 million in Eurobond at a coupon rate of 7.75 percent due 2022.
Fidelity Bank, a tier 2 lender issued $400 million Eurobond with a 10.50 percent coupon due 2022.
Tighter monetary policy in the United States could potentially raise borrowing costs for banks and other corporates that plan to tap the international bond markets in the future.
Wale Okunrinboye, a fixed income and FX analyst at Ecobank says since benchmark U.S Treasury’s are trending up and there is the possibility of a rate hike, Nigerian firms may have to pay a higher risk premium to issue or refinance maturing bonds because the market is becoming more risk conscious.
BALA AUGIE
