By Jeph Ajobaju, Chief Copy Editor
A lack of dollar liquidity makes it impossible for Nigerian banks to fund acquisition of assets being sold off by Shell that is divesting from onshore activities in the country because of operational difficulties, including compensation for oil spills.
Guaranty Trust Holding Company (GTCO) Chief Executive Officer, Segun Agbaje, made the point at a virtual investor conference, stressing that such a foray would require up to $1.8 billion.
Raising that kind of funding locally at the moment can be very tough, he said, quoted by Bloomberg.
Shell divestment from Nigeria
Shell admitted earlier this year that its exploration in the Niger Delta, which is prone to spills, is incompatible with going green after more than half a century of lifting oil out of the wetlands.
Bloomberg reports that Shell has been gradually selling onshore assets in Nigeria to back off from long-standing issues such as pollution caused by broken pipelines and court disputes with host communities.
Shell’s ambition to turn itself into a clean energy behemoth and progressively wind down its oil and gas sector to reach net-zero carbon emissions by 2050 has exacerbated the problem in the last year.
It announced in May that it would abandon its onshore oil operations in Nigeria because they no longer fit with the company’s strategic goals, among other reasons.
Lack of dollar liquidity
Agbajue said “such a deal [of acquiring Shell assets] would require syndication of up to $1.8 billion and it can be very tough to raise this kind of funding locally at the moment.
“When I look at the books of Nigerian banks today, I don’t see a lot of dollar liquidity. It is becoming a very difficult deal for people to pull off”
The capacity of Nigerian banks for such transactions has reduced significantly since they syndicated $3.3 billion in debt to Dangote Refinery in 2013 and recently financed Heirs Holding’s $1.1 billion acquisition of OML 17.
Agbaje said dollar inflows into Nigeria are slowed by a drop in crude prices and an economic downturn brought on by the pandemic, putting pressure on reserves.
GTCO is seeking a licence from the Central Bank of Nigeria (CBN) to establish a payment firm to mitigate issues in its primary activities.
Agbaje disclosed that the company is waiting for regulatory permission to acquire pension and asset management companies.
“Our desire in the medium to long term is that the three new businesses will contribute about 30 per cent of group profit,” he said.
After interest earnings from loans and investment securities fell 22 per cent to N116.9 billion in the first half of the year, the net income of GTCO dropped 16 per cent to N78.1 billion ($189.8 million).
Slow economic growth impacts banks
“Nigerian banks are held down by the slow economic growth,” says Pita Ochai, a financial analyst.
Nigeria has agreed $5.6 billion loans with China alone for infrastructure projects. But as of March 2020, Beijing had disbursed $3.3 billion. With Nigeria already servicing the loans, $3.1 billion was outstanding as of then.
The capacity for a Nigerian bank to fund such huge projects is possible only if the economy itself is that expansive, Ochai explains.
“Banks become stronger and able to fund big projects if the economy is big enough. But for now, the Nigerian government has to look abroad because if they borrow from the local banks, interest on loans will spiral out of control, which is what we do not want.”