The last 4 years have been eventful ones for investment banks in Nigeria where we have had a flurry of transactions initially driven off a combination of high oil prices, government privatization of the power sector assets in 2013, divestment of the Shell assets in 2014 and the subsequent sharp drop in commodity prices, weakening of the Naira and macro-economic challenges.
From a project financiers’ perspective acting as financial adviser, structuring bank and or debt arranger, I can say that the times remain very challenging, but we in the local financial community remain resilient, optimistic and ambitious and see things as ‘half full, rather than half empty’.
What excites me, in particular, are the creative features that we at our bank, and some of our peers are able to construct, in an effort to get new deals “banked” and more recently to address debt service constraints on “challenged facilities”.
Many of the recent challenges are driven by a combination of macro and systemic factors, for example, short tenors, an absence of long term and much needed pension funds liquidity, project economics “historically” tied, not to the Naira but to the US dollar, and of course the much reported on, limited availability of foreign exchange, namely the US dollar.
Just taking one of these issues as a point to elaborate, short tenors, structuring “bankable” transactions given the continued absence of long tenured liquidity remains a major challenge for us and indeed a host of corporates. Save for the Lekki-Epe expressway toll road transaction which achieved financial close in 2008, project debt maturities appear to have hit a 7 year “brick ceiling” and very few transactions have succeeded in piercing this tenor. The reasons for this are pretty obvious given the fact that in a deliberate attempt to manage their balance sheets, local banks are not able to provide long term funding in excess of 5 to 7 years in view of the short term nature of their own liabilities.
This means that the challenge for sponsors is the fact that they end up with a smaller group of interested local banks in situations where their projects require debt tenors towards and or beyond the 7 year threshold.
Patrick Okey Mgbenwelu
General Manager & Head, Debt Solutions, FBN Merchant Bank
Source: EMEA Finance, 4 May, 2017.
Download the full interview with Patrick Mgbenwelu HERE