Nigeria’s billionaire businessman Femi Otedola has shown interest in acquiring the upstream assets and power business of Forte Oil Plc. However, letting the juicy part of the entire Group go at anything less than a premium will be another litmus test for shareholders.
This comes as issues bordering on proper valuations for the Forte Upstream, Forte Ghana, and its power units become topical at various gatherings where informed investors discuss the notice of the proposed Extra Ordinary General Meeting (EGM) of the company holding on February 7.
The issue on valuation for the Forte Oil asset sale to its majority shareholder comes barely three day after Oscar Onyema, CEO of Nigerian Stock Exchange (NSE), advised shareholders to properly examine issues that are brought to them for approvals at either annual general meetings (AGMs) or EGMs.
“The Exchange has done a lot to protect investors’ interests, but investors should make efforts to protect themselves. Investors should ask questions at AGMs and EGMs. We will continue to enforce disclosure. Shareholders are encouraged to keep their eyes on the Board and ask questions,” Onyema said on Monday while presenting the 2018 market recap and 2019 outlook.
Forte Oil shares rose on the Nigerian bourse following the news on Otedola’s interest in the assets. The share price of Forte Oil Plc increased from N28 to close at N29.4kobo on Wednesday, January 16, gaining N1.4kobo or 5 percent.
In the proposed Extra Ordinary General Meeting (EGM) notice sent to the NSE by Forte Oil Plc, the company said it hopes to obtain shareholders’ permission to enter negotiations with Otedola or any company representing him in connection with assets Forte Oil Plc intends divesting from.
Forte Oil Plc, listed on Petroleum and Petroleum Product subsector of the NSE Oil & Gas sector, has 1,302,481,103 outstanding shares and market capitalisation of N38.29 billion as at Wednesday.
A cursory look at directors’ interests in Forte Oil Plc shares as at December 31, 2017 shows that Femi Otedola directly holds 186,260,357 units in Forte Oil Plc while indirectly he holds 838,472,441 units.
While the downstream sector is going through turmoil, the upstream sector is about to take a paradigm shift as the Federal Government is relying on Dangote Refinery with a 650,000 bpd which will not only reduce petroleum products importation but also lead to exports to neighbouring countries. The refinery was set to begin operation in December 2018, but shifted to 2019.
Just recently, Otedola, majority shareholder in Forte Oil Plc, reached an agreement with Prudent Energy team, investing through Ignite Investments and Commodities Limited, to divest his 75 percent direct and indirect shareholding in the company’s downstream business.
Forte Oil Plc notified the Securities and Exchange Commission (SEC), Nigerian Stock Exchange (NSE) and the investing public, saying that Otedola’s divestment from the downstream business is pursuant to his decision to explore and maximise business opportunities in refining and petrochemicals. The application for this transaction expected to be completed at the end of first-quarter (Q1) 2019 is yet to reach both the apex and self-regulator in the stock market.
“The shareholders hereby approve that the company may enter into discussion with Femi Otedola or any company representing him in connection with the assets to be divested and subject to an independent valuation on fair value, enter into subsequent binding agreements on comparable armslength/commercial terms in relation to the assets to be divested,” Forte Oil said in a statement to NSE.
Listed on the NSE, Forte Oil Plc is an operating holding company (HoldCo) under which the Group undertakes its downstream business in Nigeria, and also holds interests in AP Oil & Gas Ghana Limited (100 percent), Amperion Power Distribution Company Limited (57 percent) – the vehicle through which the Group’s interest in Geregu Power Plc is held – and Forte Upstream Services Limited (100 percent).
The core of Forte Oil’s operations is in the downstream oil and gas segment, and the Group has established itself as a foremost indigenous petroleum marketing company with a rich history and strong operational platforms.
The audited financials of Forte Oil Plc for the year ended December 31, 2017 adopted by shareholders at the annual general meeting show revenue declined to N129.44 billion, from N148.60 billion in 2016, representing a decrease of 12.9 percent. The Group’s net finance cost stood at N3.63 billion, from N4.28 billion in 2016, down by 15.2 percent.
The Group’s Profit Before Tax (PBT) doubled to N10.63 billion in 2017, from N5.34 billion in 2016, representing an increase of 99 percent.
The year in review was very challenging for Forte Oil downstream business with reduced product supply owing to foreign exchange scarcity and volatility, Akin Akinfemiwa, CEO, Forte Oil Plc, had told shareholders. He had linked “the lack of adjustment to the PPPRA template to reflect the realities in the foreign exchange rate and rising crude oil prices which crossed the thresholds used to set the N145/litre price”.
In the financial year ended December 31, 2017, Forte Oil downstream business recorded a turnover of N74 billion, representing 38 percent decrease compared to N120.1 billion recorded in 2016.
“The downstream sector is a high-volume, low-margin environment and the problem of poor supply has an immediate impact on the short-to-midterm profitability and expansion. The outstanding subsidy payments persist and remain a source of funding pressure for downstream companies in general,” Akinfemiwa noted.
Forte Oil noted that members entitled to attend and vote at the EGM are entitled to appoint proxies to attend in their stead. It also excluded Femi Otedola and his indirect holdings, namely Zenon Petroleum and Gas Limited and Thomas Investment Limited, from voting, which is in compliance with the requirement of the NSE rules relating to Board meetings and General Meeting of Issuers.
Iheanyi Nwachukwu & Dipo Oladehinde
