Nigerian lenders who are heavily exposed to the troubled oil and gas sector are breathing easier as a majority of the loans extended to mostly indigenous oil firms have been restructured.
The restructuring has mainly been by increasing loan tenors, allowing struggling clients to pay, based on their cash flow capacity and converting some amortising loans into bullet loans, BusinessDay has learnt.
“Sixty to 70 percent of loans in the oil and gas sector have been restructured with prodding from the Central Bank of Nigeria (CBN),” Aurelien Mali, Senior Credit Officer, Sovereign Risk Group at Moody’s Investors Service said.
Nigerian banks’ balance sheets are highly dollarised, with foreign-currency-denominated loans constituting around 50 percent of total as of the end of June 2016.
The banks’ exposure to the oil and gas industry is substantial, at around 30 percent of total loans, of which about one-third is to the upstream segment.
Guaranty Trust Bank and FBN Holdings have the highest proportion of loans to the oil and gas sector, of 40 percent and 35 percent respectively and large foreign-currency loan exposures, according to Moody’s.
Looking across the Nigerian banking sector, Moody’s expects non-performing loans (NPLs) to increase to around 12 percent over the next 12 months, compared to the 5 percent recorded as of December 2015.
Investors are worried about foreign exchange liquidity for banks and the near 40 percent decline in foreign exchange deposits, even as the debt restructurings mean Non Performing Loan (NPL) ratios will not increase significantly in the medium term (12 to 18 month), according to Moody’s.
“The breakeven oil price for most of the restructured loans for the upstream is $30 per barrel, meaning current oil prices will support the loans going forward,” Akin Majekodunmi, Senior Analyst, Financial Institutions Group at Moody’s said.
Declining oil prices over the last two years have led to a corresponding decline in the revenues of Nigerian oil and gas corporates, making it more difficult for them to service their predominantly foreign-currency borrowings
Ten years ago, indigenous Nigerian oil and gas firms produced less than 50,000 barrels per day (bpd), but today account for 12 percent of estimated 2.2 million bpd production and 20 percent of Nigeria’s oil and gas reserves, according to Ladi Bada, Managing Director/CEO, Shoreline Natural Resources Ltd.
“Efficiency must grow to cope with lower oil prices and militancy. Our largest cost base comes from security and funding,” Bada, whose firm produces about 50,000 bpd mainly for exports, said.
Oil bunkering, attacks and siphoning from shorelines nearly 19 km of pipelines has hurt output this year, according to Bada.
“Now, we are seeing attacks on oil infrastructure that are more politically motivated. Indigenous producers recently met with the Petroleum Minister on the danger of prolonged militant attacks on the sector. Government must work swiftly to end the problem,” Bada said.
One of the companies that has had its loans restructure is Seplat Petroleum Development Company’s which saw average working interest production was down 34 percent when compared to the previous year and gross revenue for the first nine months of 2016 was US$203 million (N48 billion), down 51 percent from 2015 level (2015: US$420 million (N83 billion)) reflecting the shut-in of the Forcados terminal and lower oil price realisations.
“The company adopted a prudent approach and proactively engaged in discussions with its lenders in the US$700 million seven-year term facility (the “term loan”) to re-align near -term debt service obligations within the existing tenor.
“Having re-financed in January 2015, the lenders in its term loan approved the deferment of first half 2016 and 2017 principal repayment obligations totalling US$150 million until the end of 2017, thereby reducing the company’s principal debt service obligations during this period to US$57 million,” Seplat said in an October 27 filing of interim third quarter, 2016 results to the Nigerian Stock Exchange (NSE).
Brent crude futures were up 28 cents, or 0.6 percent, at $47.23 a barrel by 11:00 a.m. EST. U.S., down some 60 percent since mid 2014.
PATRICK ATUANYA
