April 10, 2018/InvestmentOne Report
Seplat announced on the 13th of March 2018 that it had successfully refinanced its existing US$300million revolving credit facility with a new four year Revolving Credit Facility (RCF) under the same terms carrying an initial interest of LIBOR plus 6% payable semi-annually.
The company also issued a US$350m 9.25% senior notes due 2023, cheaper than the previous seven year term loan (LIBOR plus 8.75%), and envisaged its gross-debt to be US$550m. All proceeds from the notes and RCF will be used to pay off existing indebtedness while the residuals would be invested in general core group purposes.
This is expected to strengthen the company’s liquidity position, allow it to focus on its growth strategy and could be supportive of bottom line performance in the near term given the reduction in debt and the negative impact of further interest rate hikes by the developed economies may have had on floating rate debt.
Seplat’s pioneer tax incentive for a period of three years (extendable to five years) elapsed in 2015. As such, the company has applied for an extension of the pioneer status award on the back of meeting the specified conditions required by the NIPC. The company recorded c.N67 billion in FY2017 in tax credits, which increased overall profit after tax to N81billion.
Going forward, we expect revenue performance to see support from the stability in Brent oil prices (currently above US$65/barrel), continued peace in the Niger-Delta, improvements in technical operations and ongoing de-risking of business operations.
Moreover, the company’s strong financial position, following the 170% y/y increase in cash and cash equivalents to N133.7billion in 2017 and the recent debt refinancing should be supportive of the companyâs plans to reinstate dividends at the earliest opportunity as well as its capital expenditure plans. Seplat plans to increase capital expenditure (capex) to US$98 million in 2018 and US$150 million in 2019 from US$33 million in 2017.
The capex spending should sustain the company’s growing gas business, with a view of increasing its contribution to revenue to 52%, from about 30% in 2017. The expansion of the Oben hub coupled with the delivery of the ANOH hub development in the near term should further drive the gas business growth into a new phase.
With this said, while the Niger Delta region should remain stable in the near term, given the administration’s increased efforts to dialogue with leaders in the region, our concerns are on the medium to longer term outlook for the area.
Also constituting a downside risk is the uncertainty around the possible extension of the OPEC and non-OPEC allies production cap agreement, which elapses at the end of 2018. Although the agreement has largely been partly responsible for the recovery and stability in the global oil market we opine that an end to the agreement may adversely affect the oil prices. In addition to this, the influx of US shale oil into global market also poses a downside risk.
