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Banks panic over power firms’ loans

By on May 19, 2014

Some of the recently privatised power firms may not be able to meet their loan obligation to the banks that financed the privatisation process following losses being recorded in their operation, top industry sources have said.

The first loan instalment of majority of the power firms will be due in June and the development, according to top banking officials, is causing panic among some bank executives whose institutions have been deeply involved in the privatisation process.

Nigerian banks had provided N280bn for the privatisation process.

Specifically, the banks were responsible for raising over 70 per cent (about N280bn) of the balance paid by investors for the 14 successor companies to the defunct Power Holding Company of Nigeria.

The Federal Government realised about N400bn from the privatisation transaction.

The chief executive officer of a bank , who spoke under condition of anonymity because of the sensitive nature of the issue, said, “There are fears in the banking quarters now as the loans get due by June. Top banking officials are concerned because they are not too sure most of the power firms will be able to meet up with the first instalment.

“The reason they are worried is that most of the power firms have not been making money. Some are running at serious losses. So the probability of meeting up is slim. For the Gencos, the issue of gas to power has been a major problem. This is why we are sure some of them may not meet up with this first instalment.”

The Africa Finance Corporation and some Nigerian banks namely: United Bank for Africa Plc, FCMB and Fidelity Bank, committed a total of $215m (N34.4bn) in the form of a debt financing facility for the acquisition of Ughelli Power Plc.

The AFC said its aggregate financing commitment for the acquisition was about $55m (N8.8bn), while UBA, FCMB and Fidelity provided the balance.

GTBank and the AFC had sealed $170m medium-term syndicated acquisition facility for Mainstream Energy Solutions Limited towards the acquisition of Kainji Hydro Electric Plc.

The Chief Executive Officer, GTBank, Mr. Segun Agbaje, said the financing underpinned the lender’s belief in, and support for, the growth of the power sector.

UBA Plc and UBA Capital Plc also played a leading adviser role in the acquisition of three out of the six generation companies in addition to a distribution company.

The bank said it successfully arranged the debt financing of $215m and equity for the acquisition of Ughelli Power by Transcorp Ughelli Power Limited.

As the financial adviser and mandated lead arranger, UBA said it successfully arranged debt financing of $68m as well as secured equity investment from a strategic and technical investor for the acquisition of the Shiroro Hydroelectric Power Plc by North South Power Company Limited.

The Group Chief Executive Officer, UBA Capital Plc, Mr. Rasheed Olaoluwa, said the investment group had been an important partner in the privatisation process and was currently advising three out of the six generation companies.

UBA Capital also arranged the debt financing of $121m for the acquisition of the Abuja Electricity Distribution Company Plc by Kann Utility Company Limited.

On Friday, UBA, GTB and FCMB did not respond immediately to an enquiry sent to them on the matter.

However, the Deputy Managing Director, Diamond Bank, Mrs. Caroline Anyanwu, said the bank relied on its experience in the oil and gas sector to select power firms it financed and, as such, the bank did not fall into some of the pitfalls.

Specifically, she said the bank selected power firms that had their base very close to where they could easily get gas to generate power.

Hence, the firms, she stressed, did not have such financial issues.

 

 

[Punch]