Nigeria risks oil price shock

Nigeria is exposed to a potential oil price shock as the combination of new supplies coming on stream from non Organization of Petroleum Exporting Countries (OPEC) members, and lower imports from our largest market, the United States, threaten to pull the price of oil lower. Crude oil exports provide 90 percent of Foreign Exchange (FX) earnings and over 80 percent of the Federal Government’s budget.

“Our budget runs into trouble for any price lower than $95 / barrel. In the United States (US) oil /gas import terminals are currently being converted to export terminals, with the huge potential of hydraulic fracturing technology in shale oil/ gas, and Canadian tar sands. What is more ominous though, is that our Government seems completely oblivious to the looming crises” said an industry source to Business Day.

Nigeria has historically been a traditional supplier of oil to the US, which today buys more than 40 percent of Nigeria’s oil exports; however a combination of new drilling methods and better gas mileage in cars in recent years, is cutting into US oil imports.

Domestic oil production in the US is at an 80-year high and natural gas production is at an all-time high, according to latest data from the US Energy Information Administration- EIA. New vehicle fuel economy standards put in place by Obama will cut oil consumption by 2.2 million barrels a day, according a White House fact sheet. The U.S. imported 45 percent of its oil needs in 2011, down from 57 percent in 2008, according to a March 2012 administration report.

Oil retreated in New York yesterday on curbing fuel demand. Crude oil for June delivery fell $1.08 to $91.48 a barrel on the New York Mercantile Exchange yesterday, the lowest in six-months. Nigeria’s budget is based on an oil price of $72/ barrel. The Excess Crude Account (ECA), where the country saves any earnings above the benchmark budget price contained $4.3 billion dollars, according to the finance minister, Ngozi Okonjo- Iweala, in a recent statement.

“Rebuilding fiscal savings at a time when the oil price is still elevated is vital to smooth the boom and bust oil cycles which are virtually unavoidable in the long-run” said Samir Gadio, Emerging Markets strategist in a response to BusinessDay.”Yet the ECA balance (proxy for fiscal savings) is critically low, at less than 2 percent of Gross Domestic Product (GDP) vs. a median of 67 percent among oil exporting countries” Gadio says this points to an exceptionally loose fiscal environment, and also makes urgent the effective launch of the Sovereign Wealth Fund, to proactively address the risks of future external shocks.

Access Bank, Intercontinental merger wins M&A award

The merger deal between Access Bank and the defunct Intercontinental Bank in 2011 has been adjudged Africa’s top merger and acquisition (M&A) deal by the Banker Magazine. The magazine, a member of the Financial Times stable of publications, therefore selected Access Bank and Intercontinental Bank deal as the “2012 Mergers and Acquisitions Deal of the Year” for Africa.

Access Bank was the first to embark on a seamless acquisition of Intercontinental Bank following the approval by the Central Bank of Nigeria (CBN) for the bank and others to be sold to save depositors of their investments. Intercontinental Bank has since been integrated into the bank making Access Bank to emerge top five banks in the country.

The Banker’s Deals of the Year Awards celebrate the most impressive transactions in capital raising, M&A Corporate and SSA bonds, infrastructure and project finance, loans, structured finance, equities, restructuring, Islamic finance and this year a newly added trade finance category.

Many deals were undertaken in very difficult market conditions, while banks from emerging markets are noticeably playing a larger role in the top transaction in their countries.

Indeed, the takeover of Intercontinental Bank by Access Bank last year was a product of Nigeria’s 2009 banking crisis. Intercontinental Bank, one of the country’s biggest lenders, was among the 10 to fail stress-test carried out by CBN in the latter half of the year. The bank, like the other nine, was forced to accept capital from the government and was given two years to recapitalize further to the extent that it could stand on its own feet.

Many banks initially lined up to buy Intercontinental Bank Plc, hoping to get their hands on the lender’s large branch networks and asset base to establish themselves among the biggest players in Nigeria. However, Access Bank Plc, already a large lender in Nigeria, emerged victorious.

Consequently, the acquisition has substantially changed the face of the Nigeria banking sector as Access Bank now entered into the top tier, which previously comprised First Bank, Zenith Bank, Guaranty Trust Bank (GT Bank) and United Bank for Africa, (UBA). The big four has now become the big 5: Access Bank has risen to become the third largest Nigerian bank by assets. Access Bank’s acquisition has increased competition in the already fierce retail market in Nigeria and could well drive down costs for consumers.

Dangote Sugar plans acquisition of Savannah Sugar to shore up earnings

With its proposed acquisition of Savannah Sugar, Dangote Sugar Refinery (DSR) Plc would further deepen its leadership position in the Nigerian sugar industry, where it presently holds sway, possessing 70 per cent market share, in addition to the largest sugar refinery in Sub-Sahara Africa, with installed sugar refining capacity of 1.44million metric tonnes per annum.

Chairman of DSR, Aliko Dangote revealed this while addressing shareholders of the company at the company’s 6th annual general meeting in Lagos, as he said, DSR’s raw sugar importation and refining business has experienced declining profitability margin “due to volatile raw sugar prices in the global market and increasing competition in the local market.”

He explained to the shareholders that as part of strategies to retain its market leadership, and dominant position, the company had been working on a number backward integration strategy, into domestic sugar production and milling business.

Shareholders of the company at the weekend approved the proposal to acquire Savannah Sugar Company (SSC) for its background integration objectives. Dangote however noted, that ( Savannah Sugar Company)SSC was currently 95 per cent owned by Dangote Industries Limited (DIL), the core shareholder and was acquired from the Federal Government in 2002 during the privatization exercise as part of DIL to reduce the company’s dependence on imported raw sugar.

“The new strategy is in support of the Federal Government transformation agenda and is ahead of the proposed sugar policy with the thrust of encouraging local production of sugar. The strategy will significantly reduce the company’s cost structure, while ensuring that it remains competitive and delivers improved profitability and enhanced shareholder value,” he said. Speaking in the same vein, the managing director of the company, Abdullahi Sule said the vision of the company was to grow the local and international markets.

“Arrangements are currently on to expand our export horizon beyond Ghana. We are prospecting other countries across the West African Coast. Efforts are in top gear to ensure the refinery expansion projects and the proposed acquisition of Savannah Sugar as part of our backward integration projects are completed this year,” he said.

Diamond Bank posts N7.8b profit in Q1

Diamond Bank’s operating performance has continued to show significant improvement even as the bank reissues its first quarter 2012 results in line with the International Financial Reporting Standards (IFRS). The bank’s reissued results indicate a profit before tax of N7.8 billion for Q1 2012.

According to a statement made available to The Guardian, Group Managing Director/CEO of the bank, Dr. Alex Otti, stated that the first quarter results prepared according to IFRS shows a consistent improvement in PBT growth, indicating that the bank is on track towards delivering significant return on investment in 2012.

While the bank recorded a net interest income of N20.2 billion, operating expenses stood at N13.5 billion and profit before tax at N7.8 billion, These figures are consistent with the results prepared based on Nigerian General Accepted Accounting Practice (NGAAP) where the bank recorded N18.1 billion, N13.4 billion and N7.5 billion for net interest income, operating expenses and profit before tax respectively. Said Otti; “Our customer base is growing with recurring monthly fee income improving, and our growing retail liabilities have continued to sustain our low cost of funds. We have shown that we have a leading position in net interest margin, which is sustainable. In addition, our operating efficiency is robust and yielding strong operating performance.”

Diamond Bank’s group balance sheet results for Q1 2012 indicate that its cash balances with Central Bank is N61.8 billion, loans and advances to customers is N433.5 billion, total assets is N855.3 billion and deposits from customers is N641.1 billion. These IFRS results are similar to the one prepared according to NGAAP where the bank recorded N61.7 billion, N440.3 billion, N858.3 billion and N640.1 billion respectively.

Indeed, the bank’s loans and advances to banks, and deposits from banks were uniform at N92.7 billion and N7.1 billion respectively for both standards.

Consolidated Breweries shareholders approve N3.25k dividend

FOR the year ended December 31, 2011, shareholders of Consolidated Breweries Plc have approved N2.25 kobo dividend. The company had earlier paid an interim dividend of 100 kobo, bringing final dividend paid for the period to N3.25 kobo. Within the period under review, according to a press statement issued at the weekend, Consolidated Breweries Plc recorded turnover of N27.9 billion, from N24.5 billion in 2010, an increase of 14 per cent.

Speaking at the company’s yearly general meeting in Lagos, the press statement quoted Consolidated Breweries chairman, Prof. Oyin Odutola-Olurin as saying profit after tax declined by 18 per cent from N3.2 billion in 2010 to N2.6 billion in 2011.

She attributed the decline in the company’s profit to increasing operational costs occasioned by inclement operating environment in the country during the period under review. Odutola-Olurin noted that the partial removal of subsidy on fuel in January had further increased costs of running the company.

According to her, key reforms were expected in various sectors, “including power and infrastructure, that impact on our operations.”