Why Forte Oil wants to raise N20 billion from the equity market

One of the top 5 major petroleum marketers, Forte oil has unveiled plans to raise N20 billion in equity from the stock market. While management of the company has not stated if it will issue new shares or take a rights issue, investigations by Nairametrics suggest the firm may be more inclined to a rights issue. The company may have weighed the following factors before deciding on an equity raise.

The equity market is currently witnessing an uptick in activities. A combination of the change in asset allocation rules for Pension Fund Administrators (PFAs) and opening of a window for investors and exporters has led to a sustained rise in the price of equities. Though the company’s shares are down -23.84%, the stock has recently been rising. From a low of N43, Forte shares are currently trading at N64 and may go higher. The rising appetite for equities, means an equity offer may witness a high level of subscription.

Globally, crude oil prices are still quite low, so crude oil assets are also trading cheaply. The company plans on buying additional upstream and downstream assets. At current prices, the company would be able to get a good deal. Forte may be learning from Oando which bought ConocoPhillips assets at a time when prices were high. The subsequent crash in prices has left the company struggling to pay the loans and led to a drop in the valuation of the oil prices. Management of the firm had expressed the need for further expansion downstream to overtake Total which is the market leader. NIPCO, which recently acquired a majority stake in Mobil, had also expressed intentions to further expand its retail outlets.

For the kind of expansion plans it has, what the firm needs is patient capital. Repayments on a N9 billion bond and high bank lending rates mean an equity raise was the most prudent option for the firm in terms of cost. Forte Oil, was established in 1964, as British Petroleum. An indigenization policy, led to the Nigerian National Petroleum Corporation (NNPC) and Federal Government taking up stakes in the company. Both parties eventually divested their stakes and Zenon Petroleum and Gas became the dominant shareholder.

Mr Femi Otedola is the majority shareholder in Forte Oil Plc with over 90% shareholding in the company. He initially acquired shares in Forte Oil, via is company, Zenon Petroleum before transferring most of the shares to himself.

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