The increasing cost of importation and running business has been a major concern for business owners, especially in the transportation sector.
In an interview with Nairametrics, the Managing Director of C&I Leasing Plc, Andrew Otike-Odibi, explained that it is quite tough living in a country where cost keeps escalating.
He called for a more business–friendly environment for assembling local vehicles in Nigeria, which would make the cost of vehicles cheaper, such that the average cost of transportation for the common man would be bearable.
On the effect of Peace Mass Transit becoming the largest shareholder of the company, he explained that there might be some board changes, but the board had not discussed whether the development would lead to rebranding.
What is the impact of COVID-19 on your operations?
Our marine business is predominantly oil and gas driven. So, that has an impact on all our marine side as well, because the oil and gas companies were looking to optimize their cost of different areas.
Are there opportunities created by the pandemic?
Interestingly, in our outsourcing business, the COVID-19 created an opportunity because while companies were rationalizing or downsizing, it created an opportunity to provide staff on basics and also provide some online training for existing staff, rather than physical training.
That was a plus for us. That is why we strive to stay ahead in the diversity of this business. You find out that in any situation, you might have one side of the business impacted negatively and another side of the business being impacted positively.
What do you think the government should have done better to manage the pandemic, especially with the second wave?
Well, I think the government started well, when in March when they shut down the airport and the awareness was very high. Without the lockdown, imagine the impact on lives. It would have been much worse.
Coming out of the lockdown, I think everyone went to sleep, so the second wave is a result of that relaxation. If you noticed, the same level of drive that was given to awareness creation, the use of non-pharmaceutical needs to fight COVID, is not as real now as it was in March\April. It looks like we’ve just been in a relax mode but the impact is still heavy on lives and also on businesses. I think the government should sustain the awareness by not paying lip service to it. Because we are talking about lives.
I think COVID has brought about a lot of changes in businesses. A lot of things are being done remotely and there’s a new work style; we work from home. I think that is something that should be promoted more now than the traditional way of working to see how we can help curtail all the spread of this virus before it gets out of hand.
What is the update with the Peace Mass Transit acquiring major stakes in your company?
Peace Mass Transit, first of all, has been a shareholder of C&I leasing and a director of C&I leasing. Actis is a logical top fund that needed to exit because if you understand the way the venture capital funds operate, they have a time limit for their investment and they have to exit at a point and return funds to their investors.
At the point of exit, Actis approached the existing shareholders and directors and asked to find out if anyone or party was interested in taking up their slot. Peace Mass Transit was ready and took advantage of the opportunity and in doing that, we see it as a very positive move.
First is that the move is from an existing shareholder and director who also already knows the business and that to us is a show of confidence. It’s also a show of maturity in the Nigerian investing cycle because you find out that Nigerians are going abroad to raise money to take out venture capital funds and all that. But this is homegrown, and it’s showing that with the proper structuring in place and proper investor alignment, you can find growth in the real sector in this country and that will impact on the investing public and also the investors. So we see it as very positive.
How does this affect your liquidity status?
The liquidity of the business initially is not impacted, as this is an external transaction. External in the sense that Actis is sending straight to Peace Mass transit without any direct impact on the operations of the business.
What this would do for us in the near future is that what we’ve been carrying in our books as a loan stock, which now becomes equity, and it will show up as equity in our books and this opens up the gate to raise additional equity from other shareholders who had been waiting to invest but were not too sure of the nature of that loan stock. I believe this creates clarity to some people who are interested in investing in the business.
The emergence of Peace Mass Transit will lead to changes in the board and may lead to rebranding. Are you prepared for these?
I imagine that there might be some board changes, but we haven’t had that conversation yet, in terms of rebranding. I don’t see it affecting the brand yet, but I know we would probably have a conversation on the strategy of the business for the next three to five years, and how that will impact on all the investors and shareholders. I know for the fact that Peace Mass transit places investments to further grow their investment portfolio in Nigeria. I know they definitely want to see some good returns, and they are definitely looking at areas of the business where they can strengthen the business to improve on this profitability, and its growth potential. So, about the board changes, I’m not sure about when and how that will take place. In terms of the brand change and business structure change, I can’t be sure about that, because the strength of the business is in its brand and business structure.
How would you assess the transportation sector in Nigeria?
Transportation is a major sector for the growth of any economy and it’s not limited to human movement or movement of goods and services. We buy foodstuff in the North. This is significantly cheaper when you compare it with food prices in the south.
The main difference is the cost of transportation. Whether it is human movement or movement of goods, the cost of transportation plays a significant role in the cost of doing business in Nigeria. So it’s something we need to look at.
Are you saying the cost of transportation will increase further?
The cost of transportation will continue to go up and not just for COVID reasons The foreign exchange has worsened against the Naira, and that means it’s going to more expensive to buy vehicles and spares, and the cost of fuel has gone up as well, so the cost of transportation will move up.
I expect that the government will be more particular about how to manage this. Now there is a lot of talk about the rail system which will help the movement of goods; even the mass transit scheme calls for Government attention as well.
Also, the cost of importation and assembly of local vehicles will make the cost of these vehicles cheaper such that the average cost of transportation for the common man is bearable because it’s quite tough living in a country where the cost keeps escalating.
There are expectations that Nigeria is going to come out of recession in Q1 2021, what are your expectations regarding the Nigerian Economy and the impact of this on your business in the new year?
If the economy comes out of recession in Q1, it would be very nice and great for businesses, it would help to wake up the sectors of the economy that have been impacted by the lockdown and the COVID in 2020. My expectation really is that we would see more activities in the real sector.
The real sector, which is the manufacturing and product creation related sectors that will help further crucial demand for goods and services.
If this happens, it will help to create a path to recovery, but there is still a need for us to look at borrowing cost and how it will impact on small businesses because to me small businesses and activities in the manufacturing sector need to be protected as they are the employer of labour.
In the last one year, the share price of C&I leasing had been within the range of N3.55 and N7.35, and the company is currently valued to have a market cap. of N4.45 billion on NSE. Its share value stands at N5.70. What should your shareholders expect in 2021?
For the shareholders in 2021, I would say that 2021 is going to be a new phase for C&I Leasing, and I say that for three main reasons. One is the obvious, Peace Mass Transit becoming the largest shareholder in C&I Leasing, so we are likely to see some changes emerging from the board level, to help extract more value out of the business.
Two, is the fact that the business model has changed slightly. 2020, with the pandemic and the lockdown, made us go back to the thinking room and come up with more services. Services that are now directed more towards clients who have different assets, but who will think using these services can help them extract more value from their assets, so we don’t even have to invest in additional assets or anything, that slight change in the model is giving birth to another C&I
Thirdly, coming from the pandemic as well with the help of the work-from-home model, our services and operations have not been impacted at all. So we have seen another part of the business we didn’t even know existed, meaning there is a lot of room for expansion. Expansion of intellect, expansion of abilities to do things; so that itself has created a gap that has to be filled in terms of taking advantage of opportunities.
With those three things, I think that 2021 and beyond, we are likely to see a new company, a more refined company, a company that is more tailored towards value extraction and value creation for its customers. This conversion of loan stock to equity can then be further recapitalized at more value brought out for shareholders, for major and minority shareholders. So I will say that 2021 and beyond is giving birth to new C&I leasing.
If you say there are chances for further recapitalization, does that mean you are likely to go back into the market?
We are certainly going to go back to the market, but the road is not clear yet. However, we are certainly going to go back to the market.