07 Apr

Daily Watch – French pharma buys Swipha, NLNG on a global buyers’ hunt

  • The Senate will debate a long-awaited oil industry reform bill after receiving the draft law on Thursday, the latest step in efforts to overhaul the energy sector in Africa’s largest economy. The legislation is part of proposed reforms that make up the sprawling Petroleum Industry Bill, which has been in discussion for over a decade and redrafted many times but has yet to be passed into law. The bill’s acceptance into the upper house marks the closest it has yet come to becoming law, said Senate President Bukola Saraki. “I think we are all proud that we have gone this far and we have finally broken this jinx,” he said. Once the Senate has approved the bill, it will be sent to the lower chamber of parliament. With the approval of both, the final version will be sent to the president to be signed into law.
  • Credit default by Nigerian borrowers is a major economic risk this year after bad loans soared to their highest level in over six years as a recession weighs on consumers, the CBN said. The economy is also facing a currency crisis brought on by low oil prices, which has hammered its foreign reserves and created chronic dollar shortages, frustrating businesses and individuals. Banking sector non-performing loans rose to 14 percent in 2016, up from 5.3 percent a year earlier, the CBN said in a Financial Stability Report. NPLs stood at 11.7 percent in June 2016, it said. “The deterioration in asset quality was largely attributed to the rising inflationary trend, negative GDP growth, and the depreciation of the naira,” the report said. “Overall, credit risk remains tangible in 2017 … in servicing both naira and (foreign currency) loans.” In 2011, the bank set a limit of 5 percent for NPLs after a state-owned “bad bank” AMCON absorbed industry loans in the wake of a sector-wide bailout following massive oil and stock market loans that turned sour. The central bank said it carried out a stress test in which it assumed that half of oil loans, which accounted for 30 percent of industry credit in 2016, turned bad. It said the effect will be for banks’ capital to fall below the regulatory minimum. It said top tier lenders held 88 percent of industry loans but added that its examination “confirmed the resilience and soundness of banks in the face of daunting challenges.”
  • Nigeria LNG has begun talks with potential buyers on new contracts for gas supplies from its first three production units at its liquefied natural gas terminal. Contracts for gas supplies from Trains 1, 2 and 3 – which together produce 9 million tonnes of LNG a year – are being discussed, said the official who requested anonymity and spoke while attending the Gastech trade conference in Chiba outside Tokyo. “Trains 1-3 are coming back to the market as they are out of contract by 2022. We started to remarket today.” The units that freeze natural gas into liquid form for export on ships are known as trains in the industry. Initial responses from buyers have been positive, he said. “There are some who are guaranteed to buy,” the official said, though he provided no further details. Nigeria LNG is a venture between the NNPC, Royal Dutch Shell, Total and Eni. Its Bonny Island LNG plant has six trains with a total capacity of 22 million tonnes a year.
  • Union Bank plans to raise ₦50 billion ($164 million) by the end of the second quarter via a rights issue to boost its capital adequacy and tap opportunities to lend to agribusinesses, its chief executive said. Emeka Emuwa said on Thursday that the bank targeted a capital ratio higher than 18 percent after the fundraising, compared to 13.4 percent as of the third quarter of 2016. “We are en route to a capital raising,” Emuwa told an analysts’ call. “We see opportunities to leverage our capital not just to be in regulatory compliance but to be able to tap opportunities that we see in the medium term.” Emuwa said the total value of Union Bank’s loans rose 40 percent last year, but that was largely due to Nigeria’s currency devaluation which affected dollar loans to the upstream oil and gas sector. Without the devaluation loans grew 13 percent, he said. Union Bank reported a pretax profit of Union Bank’s shares of ₦16 billion for 2016 last week, down from ₦18.5 billion a year earlier, sending its shares lower. Union Bank’s shares, which have fallen 25 percent since the start of last year, were down 0.19 percent at ₦4.80 on Thursday.
  • Biogaran SAS, a French pharmaceuticals manufacturer, plans to tap into Nigeria’s $1.3 billion drugs market as a launchpad for its expansion into Africa, company President Pascal Briere said. The unit of France’s second-largest drugmaker, Les Laboratoires Servier acquired Nigeria’s Swipha in March after an initial $500,000 investment. Biogaran expects Nigeria’s pharmaceuticals industry to grow by more than 12 percent annually. “We found that Nigeria is well adapted for what we want to do,” Briere said in an April 3 telephone interview with Bloomberg. “We decided to invest when the recession was in its worst moment.” Nigeria’s drug-manufacturing companies have struggled to source raw materials and imported inputs because of a foreign-currency squeeze caused by the plunge in income from oil, as prices fell from 2014 and militant attacks cut output to record lows.