Seplat, one of Nigeria’s largest indigenous oil companies, could be forced to tap the capital markets once more after its successful dual listing on the London Stock Exchange and the Nigerian Stock Exchange (NSE) on Monday.
Seplat is making plans to acquire assets from multinational oil and gas companies Shell and Chevron, which could require at least $2 billion, says Dolapo Oni, energy research analyst at Ecobank. “These are large acquisitions for Seplat and they will require a lot more capex,” he says. “I’d expect to see another listing in the next two or three years.”
However, both acquisitions face complications. “Seplat’s planned acquisition of Chevron’s oil assets in Nigeria is on hold pending the conclusion of a court case initiated by Brittania-U, another Nigerian energy company, which made the highest bid on the blocks on offer by Chevron,” says Oni.
Brittania-U bid just over $1 billion for the blocks, while Seplat was the second-highest bidder at $677 million.
“Seplat’s acquisition of Shell’s assets might depend on whether Taleveras and Aiteo Group, also both Nigerian firms, will accept Seplat into their consortium as recommended by Shell,” he continues.
Taleveras and Aiteo have made an offer of $2.85 billion for the block titled Oil Mining Lease 29 – said to be the most coveted asset – put up for sale by Shell.
“Both Shell and Chevron would prefer to sell their assets to the more experienced and sophisticated company, Seplat, but they might not be willing to compromise on price,” says Oni. “Seplat might be forced to seek funding from the equity capital markets sooner than initially thought.”
Landmark deal
On Monday, Seplat raised $500 million in an IPO listed in London and Lagos – the first dual listing of a Nigerian oil company and the largest IPO out of sub-Saharan Africa since Dangote Cement in 2010.
BNP Paribas, Standard Bank, Citi and RBC Capital markets advised on the London IPO, while Renaissance Securities and Stanbic IBTC were appointed to deal with the Nigerian listing.
Some $48 million of the funds raised will be used to pay off a shareholder loan. The remainder will be used to facilitate the acquisitions, says a spokesperson for Seplat.
The deal represents a 25% free float, but is not eligible to join the FTSE 250 index as it remains incorporated in Nigeria, and foreign companies need a 50% minimum free float to enter into London’s premier indices.
Nevertheless, other Nigerian companies that have listed in London have only done so through AIM.
“To list on the main board in London, Seplat required international accounting standards and the highest levels of corporate governance and transparency, which it has aimed for from its inception in 2009,” says Oni.
“Many other Nigerian companies are still not comfortable with disclosing this much information to the public and thus are not good enough to list on the main board.”
Miguel Azevedo, head of investment banking Africa at Citi, adds: “It also represents the return of the sector to the London market, which hasn’t had a significant oil and gas listing since the financial crisis.
“Seplat really creates a new benchmark for international companies coming to the market.”
Oni says: “Companies that could follow suit include other Nigerian heavyweights such as Shoreline and Niger Delta Petroleum Resources, which also acquired assets from Shell in 2010/2011.”
 |
While the take-up of the shares was split evenly between investors in London and Lagos, Nigerian investors were slightly more cautious about the listing, explains Oni.
“Many of the investors I spoke to about the deal wanted to see how the market accepted the listing before getting involved,” he says. “Perhaps this was because the price was slightly more expensive than other oil and gas listings in Nigeria, but the Seplat listing is of much better quality than most others.”
Compared with other oil and gas companies, Seplat has a low amount of shares outstanding, explains Oni. Nigerian energy company Oando, for example, has eight billion units of shares still outstanding, whereas Seplat has 543 million.
“Because of this, Seplat offers much more value to their shareholders than other energy companies such as Oando,” says Oni. “The company’s price-to-earnings ratio is in effect only three-times book, which is a very good valuation. When compared to other Nigerian companies, Seplat is in a whole different ball game.”
Oni says Seplat will also emerge as a substantial issuer of debt in the bond and syndicated loan markets.
“This equity offer has improved their debt-to-equity ratio, giving room for more debt,” he says. “Debt would also help to preserve shareholder value [in the near term]. So they could potentially opt for debt, especially since most Nigerian banks are able to lend in dollars to the oil and gas companies. There’s room for syndicated loan deals for field development as well, and that is more likely to aid the completion of the Chevron and Shell acquisitions.
“With a producing asset, you can run a financing structure tilted more towards debt, but as you gear up to enter the exploration game – which Seplat will have to do over time to enable reserve replacement – you need more equity and that is expected to push them towards the equity markets more.”
Deepening capital markets in Nigeria
Seplat’s landmark IPO added N28 billion ($173.9 million) to the NSE, raising the exchange’s total capitalization to N12.83 trillion ($0.79 trillion). The NSE hopes to reach a total capitalization of $1 trillion by 2016.
“The deal is quite significant to the development of the NSE,” says Oni. “There are no other purely upstream oil and gas companies listed on the NSE, so this listing provides a viable investment opportunity. Smaller indigenous oil producers may be encouraged to list on the exchange as well, because of the example that Seplat has set.
“The oil and gas sector is extremely important to the Nigerian economy, providing export and foreign-exchange earnings and government revenue, and the listing will reaffirm the sector’s importance.”