Sectors that got the most deals in H1 2013

Teliat Sule

Our track of deals sealed in the first half of 2013 shows that investors have focused majorly on three sectors of the Nigerian economy: oil & gas, telecommunications and power. Each of these sectors attracted about $5 billion based on the values of the memoranda of understanding signed during the period under review. We are not surprised by this trend because the first two sectors have always been a cash cow while the power sector is expected to produce similar returns once the on-going privatization exercise is completed.

 

Next in importance –measured by value of deals, are those transactions sealed in agriculture & agro-allied, healthcare, manufacturing, banking & insurance as well as infrastructure financing. Investment inflows into the aforementioned sectors range from a low of $1 billion to a high of $2.7 billion.

Another significant discovery is that the south-south region is about to become Nigeria’s new investment haven. This is because about 64 percent of the deals went into that geopolitical zone. The south-west attracted about 29 percent, south-east 5 percent, while the north-central got about 2 percent. The north-west and north-east zones attracted the least deals during the period under review.

Altogether, memoranda of understanding (MoUs) on different investments worth about $29 billion were signed by local and foreign investors in Nigeria during the first six months of 2013.  This is one of the findings in the about-to-be-published Nigeria’s Dealbook H1 2013, prepared by BusinessDay Research and Intelligence Unit. The publication, “Nigeria’s Dealbook H1 2013” is about deals sealed by investors who are poised to take advantage of the opportunities within the Nigerian economy.  The investments reported in this publication were captured just as they were announced. Therefore, the publication tracks the nature of investment, direction, amount, as well as profiles the investors.

On a sectoral basis, activities in the oil & gas, telecommunications and power sectors topped the chart.  With regards to oil and gas deals, Oando Plc, a major player in the upstream, downstream and midstream acquired ConocoPhillip’s Nigerian assets worth $1.79 billion.  In addition, Shell will build a jetty worth $5 million in Bayelsa State whereas Sagas and the Nigerian Gas Company sealed a $20 million deal that will require Sagas to supply and distribute compressed natural gas as alternative automotive fuel.

Another important deal that took place in the oil & gas sector was the commencement of the second phase of Calabar gas project which attracted $225 million loans from Nigerian financial institutions. Players involved are Seven Energy, Accugas, while the facility were syndicated by FBN Capital,First Bank, FCMB, UBA and Stanbic IBTC. The project became expedient because of the growing gas demand from industrial users and power plants due to the on-going power sector reforms.

The telecoms sector equally witnessed a lot of sealed contracts during the period estimated at about $5.95 billion. For instance, MTN Nigeria sourced $3 billion from a consortium of banks for network expansion; Globacom obtained $1.75 billion for service modernization and capacity expansion. Huawei Technologies and China’s ZTE featured prominently in the Globacom deals. Etisalat Nigeria, which is registered as the Emerging Market Telecommunications Services Limited (EMTS), was also involved in a $1.2 billion deal for network capacity expansion. The competition in the telecommunications sector has become intense after the Nigerian Communications Commission (NCC) introduced number portability into the country earlier in the year.

Our record of inflows into the power sector does not include the 25% initial payments made by the preferred bidders in the on-going power privatization program because the exercise is still inconclusive. Nevertheless, investment in power plant expansion and related activities attracted about $5 billion in the six months to June. Major players in the sector include General Electric (GE), Transcorp, Geometric Power and GMB Leasing Partners. Others are ContourGlobal, Siemens, US Export Import Bank, Azura Power and the World Bank.

The World Bank will fund Egbin Power Plc to the tune of $145 million, through its Partial Risk Guarantee Scheme. Through its Export-Import Bank, the United States of America has made available $1.5 billion as a financial back-up for the purchase of power equipment and services from renowned US companies just as Azura Power and the Nigeria Bulk Electricity Trading Plc will invest $700 million to develop open-gas turbine power plant in Edo State. Based on the initial plan of the federal government, electricity generation should hit 10,000 MW by 2013 year end. However, this seems like a Herculean task as all the power plants in Nigeria can only generate around 3,000MW.

The plan to diversify the economy received a strong boost with the injection of $800 million into Indorama Eleme Fertilizers Company in Rivers State. The breakdown shows that the International Finance Corporation mobilized $375m; the African Development Bank (AfDB) provided $100 while the Commonwealth Development Corporation (CDC) from the United Kingdom provided $40 million. Apart from that, Olam Nigeria has invested $19 million in a new plant at Sagamu, Ogun State. The new plant is expected to have a warehouse and a factory that can handle up to 75,000 metric tons of processing value when completed. De United Foods, the maker of indomie brand has invested $30 million in oil palm refining plant in a bid to reduce the gap between the supply of and the demand for crude palm oil (CPO) in the country.

It was battle royal in the airline sector during the first half of 2013. A noticeable deal in the sector involved Arik Air which has eventually decided to take the bull by the horn in order to reduce the domination of the sector by foreign airlines. In this regard, Arik has placed an order for seven new aircraft through a contract worth $297 million. Delta Airline was not left out as it introduced business elite amenity kit to attract new customers and retain existing ones.  In 2012 as in the previous years, sectoral statistics are in favour of foreign airlines. The British Airways, Emirates and Air France jointly realised N70 billion from ticket sales out of the N158 billion realised by all airlines in Nigeria as at December 2012. The United Airline and Delta Airline dominate the intercontinental passenger market between the United States and Nigeria while the British Airways and Virgin Atlantic dominate the Nigeria-London route. On both routes, Arik Air controls less than 20 percent of the market.

In the banking sector,  two prominent Nigerian banks- Fidelity Bank and First Bank each raised $300 million in Eurobond from the international capital market. Others raised their share capital through rights issue.

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