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Banks risk losing N36.4bn to Afren exposure

By on August 24, 2015

Nigerian banks, exposed to Afren Plc to the tune of about N36.4bn ($185m), may lose part of the funds due to the liquidity challenges faced by the oil and gas firm.

A report by Renaissance Capital stated that three Nigerian banks had at least a $185m exposure to Afren, having funded some of the exploration and production assets of the independent oil and gas company, listed on the London Stock Exchange.

The company is, however, in administration currently and there is no guarantee that the banks will recover the entire funds.

Renaissance Capital said in a report that Afren documents showed that “Nigerian banks have at least a $185m principal exposure to Afren. Zenith (Bank) has $100m to OML26, $5m to Ebok; Access Bank has $50mn to Okwok/OML113 (Aje), $5m to Ebok; and Stanbic has $25m to Ebok.”

According to RenCap, of the three banks, Zenith Bank is in the most comfortable position, followed by Access Bank, and then Stanbic IBTC.

This, it said, was because the OML26 “is producing, located onshore, and has low operating costs – which implies that its production economics still make some sense at currently low oil prices.”

“The February 2014 facility is primarily secured by a charge over Afren’s interest (via FHN 26 – the SPV) in the OML26, and its cash flows. According to Zenith management, other Afren creditors do not have claim to the OML26,” RenCap said.

It added that it did not think Afren planned to sell the asset and that its oil and gas analysts were of the view that its cash flows should be sufficient to repay the loan, valuing the asset at $114m.

On Access Bank’s $50m to Okwok/OML113 (Aje), RenCap said the bank’s management had indicated it had a first-ranking lien on the Okwok and Aje fields.

It, however, noted that some of the bank’s claims were subject to counterpart consent.

It added, “Both assets are offshore and not producing. While most of the $50m was spent developing Okwok, Aje is expected to produce first, by late 2015; Okwok production could happen in 2016/2017.

“At $50/bl, our oil and gas analysts value Okwok negatively at $161m and Aje at $45m, implying 90 per cent potential credit recovery for Access (facility recovery value largely dependent on Aje).”

Noting that Afren had a $300m syndicated facility from a series of local and international banks on Ebok, which is located offshore and is Afren’s largest producing field, RenCap said Ebok creditors would likely be wiped out.

It said, “While the loan was originally secured using Ebok reserves, cash flows and material contracts, the creditors’ rights were relegated via an inter-creditor agreement on 30 April, 2015, when Afren secured life-saving interim funding of $200m.

“This implies that in a liquidation scenario, the providers of the interim funding have a superior lien to the Ebok creditors and bondholders. At a $50/bl long-term oil price and at 15 per cent WACC, our oil and gas analysts value Afren’s share in Ebok at $158mn unrisked NPV, leading us to conclude that the creditors would likely have to write off this exposure.”

It also said there were legal and contractual technicalities that could cause significant losses with regard to exposure to Afren.

Efforts to get all three banks to comment on their exposure and to the possibility of recovering the funds were unsuccessful.

Repeated attempts to reach the Head, Corporate Communications, Zenith Bank, Mr. Victor Adoji, on the phone failed.

The situation was similar with Access Bank and Stanbic IBTC. Officials of both institutions did provide respond to emails and text messages sent by our correspondent, seeking comments.

The Head, Media Relations, Access Bank, Mr. Abdul Imoyo, promised to get back to our correspondent but he had yet to do so as of press time.

Information on the Afren website showed that Simon Appell, Daniel Imison and Catherine Williamson were appointed Administrators of the company on July 31, 2015. When our correspondent called the administrators in London, he was asked to send a mail. Over 24 hours after doing so, a terse response came. It read, “Thank you for your enquiry. Unfortunately, we are unable to comment on the matters you have raised and cannot go into details regarding the specific details of any potential creditor positions.”

 

[Punch]