The Bureau of Public Enterprises (BPE) recently hinted at a plan to list two electricity distribution companies (DisCos) and one generation company (GenCos) on the Nigerian Exchange (NGX).
Similarly, the Nigerian National Petroleum Company (NNPC) Limited has been nursing this idea since the state-owned oil firm transitioned into a private-driven enterprise.
As desirable as their ambition seems, the concerns over the opaque nature of their operations leave many Nigerians worried.
If truly these companies, and others in that category, are ready to walk the tightrope, many experts believe that it could be a way out of solving some of the legacy issues these companies face.
The NNPC matter has even attracted concern from the NGX Group.
Earlier, on August 27, to be precise, the Group called on the President, Bola Tinubu, to fast-track the listing of state-owned enterprises, including NNPC, on the stock market.
The NGX Group Chairman, Umaru Kwairanga, with his team, made this call on the sidelines of the President’s two-day state visit to Brazil.
Crisis unsettling the power sector
As of April, the Federal Government had acknowledged carrying a verified exposure of ₦4 trillion in debts to the GenCos. This debt is said to have accumulated from 2015 to the end of 2023.
To clear the debt, the government have even considered raising bonds.
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Analysts say the ₦4 trillion debt points to the liquidity challenges in the power sector.
Staying afloat, counting the benefits
Solving the liquidity challenges will require operators in the sector to attract funds to stay afloat.
Already, the Electricity Act of 2023 has decentralised and liberalised the electricity market.
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The desire by the BPE to list two DisCos and one GenCo is aimed at raising capital to expand their businesses, reduce their debt, or fund other operations. Financial experts say the move is necessary to attract investment into that sector.
Listing a company on NGX or any other stock exchange offers numerous benefits, including access to capital, increased visibility, diversified shareholder base, improved corporate governance, and enhanced credibility, experts maintain.
Challenges at stake
The power sector faces a notable liquidity crisis that has compelled local and international lenders like the World Bank and the African Development Bank (AfDB) to intervene at some points.
In particular, the World Bank has been supporting the Nigerian power sector through the Power Sector Recovery Programme (PSRP) in which about $500 million was lent to support the ailing sector.
At one time, there was a discussion of $1.5 billion loan between the global bank and the Nigerian government to address metering access and improve power infrastructure in the country.
Pinnacle Daily can report that since the 2013 privatisation exercise, the Nigerian government has not stopped intervening financially in the sector, pledging recently to settle the ₦4 trillion debt to GenCos.
Struggles to take over DisCos
The DisCos also face this legacy challenge, as some banks have, in recent times, laid claim to some DisCos over failure to pay off their acquisition loans.
In August 2021, the Central Bank of Nigeria (CBN) put the acquisition loans at about N819.97 billion.
Privatised in 2013 after a $1.256 billion payment by investors for a 60 per cent stake, the federal government retained a 40 per cent stake in the DisCos, making it the minority shareholder.
The government also got another $1.269 billion for the sale of six GenCos, an upstream section of the power sector value chain.
The two transactions, which totalled $2.525 billion, amounted to N404 billion as of November 2013 at a dollar rate of about N180, of which a major part of the fund was borrowed by the investors from banks.
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In December 2021, the United Bank for Africa (UBA) got government approval to sell the Abuja Electricity Distribution Company to recover a $122 million debt owed to it.
In July 2022, the government, in conjunction with Fidelity Bank and the Asset Management Corporation of Nigeria (AMCON), took over the affairs of five DisCos over debts owed to the bank.
At the time the affected companies were Kano Electricity Distribution Company (KEDCO), Ibadan Electricity Distribution Company (IBEDC), Benin Electricity Distribution Company (BEDC), Kaduna Electric, and Port Harcourt Electricity Distribution Company (PHED).
In August this year, the House of Representatives Public Accounts Committee ordered the 11 DisCos to appear before it over a combined debt of ₦2.6 trillion owed to the federation.
NNPC shifting the goalposts
In July this year, the NNPCL Group Chief Executive Officer, Bayo Ojulari, declared that the company was on track and had a road map to be listed on the stock exchange by 2028 as part of its strategic transformation into a commercially viable, globally competitive energy company.
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In line with the provisions of the Companies and Allied Matters Act (CAMA) 1990, the Petroleum Industry Act (PIA) 2021 provides for NNPC to list its shares in the capital market.
But the NNPC had earlier, in March, under the former leadership of Mele Kyari, said it was at “the final stage of getting listed in the capital market, in keeping with the provisions of the PIA.”
This was after about three years, on Tuesday, July 29, 2022, to be precise, at the unveiling of the NNPC as a commercial entity in Abuja, when Kyari said the NNPC would be ready to list its shares on the stock exchange by the middle of 2023.
Dangote Refinery not left out
According to the chairman of NGX Group, Umaru Kwairanga, the chairman of Dangote Group, Aliko Dangote, is the pride of Nigeria’s financial market, citing his significant contributions to capital market growth and private sector development.
During a courtesy visit by capital market stakeholders to the Dangote Petroleum Refinery and Petrochemicals and Dangote Fertiliser Limited in Lagos, Kwairanga had called for the listing of the refinery and fertiliser plant on the NGX.
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He described this as “a natural progression in the Dangote Group’s journey towards transparency, market leadership, and inclusive wealth creation.”
GenCos, DisCos need long-term funding to keep afloat
Amid the calls for the listing of these companies on the NGX, there are concerns about the opaque nature of their operations.
Notably, the GenCos, DisCos, and NNPC’s operations appear cloudy to many Nigerians.
Whether the NGX needs to relax any of its listing and post-listing requirements, as many companies shy away from the market in order not to expose their poor managerial practices, seems to be another worry.
Speaking with Pinnacle Daily, the Executive Vice Chairman of Highcap Securities Limited, David Adonri noted that listing on the stock exchange is basically to provide secondary market liquidity to the shareholders.
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“I don’t think that NNPC has more than two shareholders, so the benefit of liquidity does not arise. If they do an IPO [initial public offer] and get more shareholders, they will have enough reason to list.
“The ownership structure of GenCos and DisCos is opaque. It is difficult to comment on their eligibility to list,” Adonri said.
He noted that the NGX is an international market that must follow global best practices.
He stressed that for investors’ protection and safety of investments, there are minimum expectations that listed companies must meet and continue to abide by to remain as investment-grade securities.
“It may be difficult to waive the listing and post-listing requirements if investors’ confidence is to be sustained,” Adonri said.
Pointing out that the advantages of listing are too numerous to be ignored by any serious enterprise, he added, “Those companies that hesitate to seize this opportunity have a narrow interest they are safeguarding or pursuing.”
Another financial analyst, Matthew Ogagavworia, told Pinnacle Daily that listing the NNPC could have many impacts.
“It will mean that those companies, like the NNPC for example, will have been free from the shackles of state ownership or at least will now be open to the possibility that technocrats from the organised private sector are managing the money.
“Since their stock will be listed, I believe that the federal government will want to see that its own shareholding after coming to the market will be reduced with the public holding more shares than the government,” he explained.
Ogagavworia believes that if the NNPC is listed, then Nigerians should expect improvement in the business of the state-owned firm.
“As a corporation, we expect more efficiency. We expect waste to be reduced. And for the capital market, it will mean that investors will have more stocks to trade daily on the stock market with market capitalisation swelling by the value of the listed stock of the NNPC when they get listed,” he said.
He pointed out that the only challenge the NNPC will have listing on the NGX is if the company has not been reporting profits in the last three years.
He explained that if the rule that a company must have been profitable for the last three years is something to go by, and then, from public knowledge, the NNPC has not been making profits, then how will listing it be possible?
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“This is because the NGX rule says you [a company] must have been profitable for the last three years.
“It is about profitability. In terms of other requirements like revenue, market cap, they will beat it, “Ogagavworia stressed.
He noted further that as part of the requirements, a company’s pre-tax profit must be at least N600 million, raising the concern if the DisCos and NNPC have that amount of profits to be qualified. But if they are profitable, there will be no need for waivers.
According to him, the debt crisis faced in the power sector can be addressed through long-term financing.
“As of today, if you need money for the long term, the capital market is the way to go.
“The commercial banks don’t have long-term funds which they can give to any business. So, the capital market offers that veritable avenue where people can come and buy shares and wait for those businesses to turn around and begin to pay dividends,” Ogagavworia maintained.
He noted that the DisCos got their initial take-off capital from the commercial banks, which are short-term funds, thereby risking the lives of the banks.
“As of today, it is better off that those GenCos and DisCos finance come from the public by way of equities rather than purchase funds from the commercial banks that, by the nature of the funds they have, cannot provide more than 12 months.
“We all know that these GenCos and DisCos need more than 12 months’ funding to be on a solid footing to be able to take long-term investments,” he added.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X
