Nigeria’s Oil and Gas Giant, Oando Plc announced on Monday that it has secured a $210 million recapitalization deal for its downstream operations by HV Investments II B.V., (“HVI”). HVI is a joint venture owned by Helios Investment Partners (“Helios”), a premier Africa-focused private investment firm and the Vitol Group (“Vitol”), the world’s largest independent trader of energy commodities (together, the “Consortium”).
The deal will see the formation of a new company called OVH Energy (“OVH”). OVH will not own interest in Oando Marketing Limited, Oando Supply & Trading Limited, Apapa SPM Limited, and Oando Trippmart Limited. Oando PLC will retain 49% shareholding in the newly formed corporate vehicle, with the Consortium owning 49%, and the residual 2% owned by a local entity.
Breaking down the deal
- Oando in a prior press release has confirmed that HVI was injecting about USD210million in OVH. Thus the 49% equity values OVH at a whopping $428.9 million or N128.7 billion. Oando ‘s 49% is thus valued at about N63 billion.
- Oando as a group currently has a market capitalization of about N88 billion. Investors are probably looking at this and will likely place a high enterprise value multiple on Oando.
- If Oando’s 49% ownership of a subsidiary is worth N63 billion and its total market is N88 billion, then one can assume that Oando is undervalued based on its enterprise equity value.
- Oando’s share price rose by 10% at the close of trading on Monday. It is likely that the share price will rise further on the back of this valuation.
- According to the company, OVH’s assets will comprise over 350 service stations in Nigeria with supporting infrastructure, including 84,000 tonnes of storage and a newly built inbound logistics jetty
- It will also include its complementary businesses, chiefly LPG filling and distribution, lubricants and an interest in a supply and bulk distribution company in Ghana.
- The new business will be the second largest downstream fuels company in Nigeria, with a market share of 12 per cent. Only Total is currently bigger
- Oando’s downstream assets in 2015 generated a combined revenue of about N253 billion only. However, it reported a combine loss of about N9.1 billion.
- The combined assets of the downstream sector is also about N194 billion while its liabilities is over N204 billion.
- We will believe liquidity and ability to deliver required returns will be a challenge for this company. However, we acknowledge these are giant strides.
