By Sully Manope
Nigeria’s leading lender, First Bank, curiously did not participate in the $816Million financing deal for the Azura Independent Power Project, the first, internationally structured power plant deal in Nigeria’s newly privatized electricity supply industry.
Would that be because the bank is ‘extremely’ exposed to the energy sector and is a little wary of further investment?
“No, the elephant is not tired”, says a source at the headquarters of the Bank (which uses the elephant as its symbol), an imposing edifice overseeing what used to be the promenade of the old Marina in Lagos, West Africa’s financial hub. “We just were not invited to participate”. The financing close for the 459MW project, to be sited in Nigeria’s mid-western state of Edo, on the northern fringe of the Niger Delta basin, took place in late December 2015.
From the list of financiers, it is clear that the project promoters were not keen on Nigerian banks; only First City Merchant Bank is completely local bank. Lenders include the International Finance Corporation (IFC), Standard Chartered Bank, Rand Merchant Bank, Standard Bank, First City Monument Bank, Siemens Bank, FMO, KfW, DEG, Proparco, Emerging Africa Infrastructure Fund, ICF Debt Pool, Swedfund, CDC and OPIC. The debt facilities were split across a commercial tranche of $234MM (backed by a mixture of MIGA PRI and IBRD PRG products), a $267MM DFI tranche, a Naira 24bn ($120MM) local bank tranche with a natural hedge and a $65MM mezzanine facility from the DFIs.
Nigerian banks have granted over $7Billion in debt funding to the energy sector in the last five years; both to E&P companies acquiring producing acreages and Power companies who purchased ageing power plants from the Government. With declining crude oil prices and a tough electricity market, most of these entities are struggling to repay the loans.
Another issue is the challenge of the US dollar; the collapsed crude oil prices have reduced the value of the Naira relative to the dollar and the Nigerian Central Bank’s reaction, in defending the local currency, is to ration the sale of the dollar; this has impacted decisions in Banksover such dollar denominated investments as Azura.
If you wonder why First Bank or many of the local champions were absent from this roll call, I suggest you do a little investigation of the financial health and leverage of these ‘giants’. What you find may surprise you and this is not necessarily to do with the over-exposure to the energy sector.