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Troubled Nigerian Oil Firm, Seven Energy, to Sell Assets

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  • Troubled Nigerian Oil Firm, Seven Energy, to Sell Assets

After several defaults on its debt-servicing obligations, Seven Energy, an indigenous oil and gas exploration, development, production and distribution group, has entered into a transaction for a comprehensive capital restructuring, part of which is to sell most of its assets.

The group, which operates in Nigeria through its wholly-owned subsidiaries, Septa Energy Nigerian and Accugas, is headquartered in Lagos and London.

It said parties to the agreed transaction included certain members of the group; a United Kingdom oil and gas company, Savannah Petroleum Plc; lenders under the $24.1m term loan facility and lenders under the $25m term loan facility provided to, among others, Seven Energy Finance Limited, its wholly-owned subsidiary.

Others are the holder of the 10.50 per cent Senior Secured Notes issued by the company; and an ad hoc group of holders of the 10.25 per cent Senior Secured Notes issued by the company holding approximately 40 per cent of the total principal amount of the SSNs.

Seven Energy, in a statement on Wednesday, said Savannah Petroleum would acquire “substantially all of the valuable assets of the group, including, at its option, the Strategic Alliance Agreement, which are to be transferred to Savannah, its subsidiaries, or an entity to be nominated by Savannah, subject to completion of a financial restructuring of the group in accordance with the term sheets.”

It said new capital would be provided by Savannah with funding available for, among other things, operational working capital and the liquidity needs of the target group; cash consideration to be paid to selected creditors, including the SSN noteholders, and costs associated with the agreed transaction.

As part of the agreement, the SSN noteholders will receive their pro rata share of $52.5m in newly-issued equity in Savannah and an $87.5m cash payment, in consideration for the discharge of all $318.2m SSNs and release of claims against the entities being acquired by Savannah.

It said in addition to the SSN consideration, the SSN noteholders shall also be offered the right to subscribe, on a pro rata basis to their holdings of the SSNs, for $25m worth of newly-issued equity in Savannah for a total cash consideration of $20m.

Savannah said in a statement that the transaction would involve the acquisition of Seven Energy’s 40 per cent participating interest in Uquo oil and gas field; 62.5 per cent interest in Universal Energy Resources Limited, which holds a 51 per cent participating interest in Stubb Creek oil and gas field; and an interest in Accugas Limited midstream business, a 260km gas pipeline network and associated gas processing infrastructure, potentially in conjunction with certain third-party investors.

Seven Energy said it had continued to engage alongside Savannah in discussions with other financial creditors (including the lenders under the $375m term loan facility in favour of Accugas) as regards amendments to their financing arrangements with the group with a view to agreeing with the detailed steps required for implementation of the agreed transaction.

The group said it had continued to engage in commercial discussions with the Nigerian National Petroleum Corporation and the Nigerian Petroleum Development Company with a view to reaching an agreement on the terms under which the notice of intention to terminate the SAA would be withdrawn.

On February 7, 2017, it announced that it had received notice from the NPDC, a subsidiary of the NNPC, of its intention to terminate the SAA between it and Seven Exploration & Production Limited relating to the Oil Mining Leases 4, 38 and 41.

“While discussions are still ongoing, and there can be no certainty that a satisfactory resolution will be reached, Seven Energy anticipates that reinstatement of the SAA, which is held by Seven Exploration & Production Limited, will require a substantial front end cash payment with respect to accrued legacy costs and a working capital injection,” it said on Wednesday.

According to the statement, Savannah and Seven Energy have agreed that the agreed transaction will proceed on the basis that the SAA is not acquired by Savannah.

“However, were a resolution to be reached in relation to the reinstatement of the SAA, Savannah would have the right to acquire the SAA. It should be noted that Savannah will not be acquiring Seven Exploration & Production Limited as part of the agreed transaction.”

Seven Energy said Savannah had agreed to provide it with a “super senior” interim revolving credit facility of up to $20m in order for it to continue to operate its business until the successful completion of the transaction.

It said, “The provision of such funding, which is available to be utilised in three tranches, is subject to certain conditions, including consent of the Accugas lenders to the granting by certain group companies of security interests in connection with the facility.

“If the agreed transaction is not implemented, and in the absence of continued forbearance and liquidity support from the group’s financial creditors, certain key group companies are likely to have to enter into insolvency processes.”

Seven Energy, which has been grappling with severe liquidity challenge, has announced its inability to make the interest payment due October 11, 2017 on two notes issued by Seven Energy Finance Limited.

In April, it announced that it had requested a standstill from its lenders under the $385m Accugas term facility dated June 23, 2015, and had not made payments of interest and principal due on March 31, 2017.

On April 11, the group failed to pay the interest due on the $300m, 10 ¼ per cent SSN due 2021 and the $100m, 10 ½ per cent notes due 2021, and did not satisfy the conditions for the payment-in-kind interest.

“The 30-day grace period for payment of interest under the SSNs and the 10½ per cent notes expired on May 11, 2017, which represents an event of default under the terms of the SSNs and the 10½ per cent notes,” the group said.

It said its liquidity was severely affected by a range of external factors, including loss of material cash flow from its Strategic Alliance Agreement since February 2016 because of recurrent militant activity that resulted in the closure of Forcados export terminal, and a significant backlog of unpaid invoices relating to the supply of gas to federal and state-owned power stations.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria Aims for N2 Trillion Annual Revenue from Marine and Blue Economy by 2027

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NIMASA

Nigeria has set an ambitious target of generating N2 trillion in annual revenue from this sector by the year 2027.

The revelation came from the Minister of Marine and Blue Economy, Adegboyega Oyetola, during an ongoing ministerial briefing in Abuja on Tuesday.

Outlined within a comprehensive strategy, the plan involves a three-pronged approach to significantly increase revenue generation and operational efficiency within the marine sector.

Oyetola highlighted the imperative of automating revenue collection processes to eradicate bottlenecks and enhance transparency and accountability.

By deploying revenue assurance technologies, the aim is to ensure accurate billing aligned with established contracts and services rendered, thereby preventing revenue leakage.

The ministry plans to commission revenue enhancement studies targeting various departments and agencies to identify avenues for maximizing the use of existing assets.

This includes leveraging concessions to the private sector and fostering public-private partnerships to ensure efficient utilization of national assets.

Recognizing the vast potential of the blue economy, Nigeria intends to embark on investment promotion campaigns aimed at both domestic and international investors.

This strategy seeks to unlock new revenue streams within the marine sector, paving the way for sustainable economic growth.

Minister Oyetola emphasized the importance of harnessing Nigeria’s marine and blue economy, noting its significant role in driving economic diversification and reducing dependency on traditional sectors.

He underscored the government’s commitment to fostering an enabling environment for investment and innovation within the sector.

The ambitious revenue target reflects Nigeria’s determination to tap into its vast marine resources, which have long been underutilized.

With strategic planning and concerted efforts, the country aims to position itself as a key player in the global blue economy, unlocking opportunities for sustainable development and prosperity.

As Nigeria charts its course towards achieving this ambitious goal, stakeholders across government, industry, and civil society will play a pivotal role in driving forward the necessary reforms and initiatives to realize the full potential of the marine and blue economy.

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Investor Optimism Dwindles One Year After Tinubu’s Reforms

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Bola Tinubu

One year into President Bola Tinubu’s administration, the initial investor enthusiasm over his ambitious economic reforms is fading.

Despite significant changes aimed at revitalizing Nigeria’s economy, persistent challenges such as currency volatility and high inflation are dampening investor confidence.

Upon assuming office in late May 2023, Tinubu enacted a series of reforms intended to attract foreign investment and boost dollar liquidity.

These included eliminating costly fuel subsidies, appointing ex-Citibank executive Olayemi Cardoso as the new central bank governor, and overhauling the country’s exchange-rate policies, which effectively devalued the naira.

While these steps initially sparked optimism and increased dollar inflows, the momentum has since waned.

Kevin Daly, a portfolio manager at London-based Abrdn Investments Ltd., highlighted the need for further stability in Nigeria’s foreign exchange market before considering additional investments in local currency bonds.

“We are likely to add to local currency bonds once FX volatility declines, but the timing of that remains up in the air,” Daly remarked.

He emphasized that the central bank cannot be the sole provider of FX liquidity for the market, calling for more foreign portfolio flows and a degree of de-dollarization.

Data from Tellimer Ltd. reveals that investor inflows into Nigeria’s foreign-exchange market fell by nearly 20% in April, averaging $200 million daily, and dropped further to $180 million in the first three weeks of May.

Since June, the naira has depreciated by almost 67% against the dollar. Additionally, the reintroduction of fuel subsidies, following public backlash over rising living costs, has further complicated the economic landscape.

Inflation remains a significant hurdle, with rates soaring to approximately 33.7%, far outpacing the central bank’s policy rate of 26.25%.

This has deterred investors like Ayo Salami, chief investment officer at Emerging Markets Investment Management Ltd., from venturing into local currency bonds, deeming them unattractive under current conditions.

Another critical issue is the repatriation of funds. While Nigeria offers higher equity valuations and yields compared to some emerging and frontier markets, peers like South Africa, Egypt, Kenya, Turkey, and Pakistan present lower repatriation risks, more credible policy frameworks, and advanced policy corrections.

Ladi Balogun, CEO of Lagos-based FCMB Group, underscored the importance of consistent and clear policy direction to restore investor confidence.

“I think as long as we can be consistent and clear about policy direction, when it comes to monetary policy and the like, then I think you will see confidence return, then you will see liquidity return,” Balogun stated. “That is when you will see international investors come back.”

As Nigeria navigates these economic challenges, the road to restoring and sustaining investor confidence remains complex and fraught with hurdles. The coming months will be crucial in determining whether Tinubu’s administration can achieve the stability and growth it seeks.

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IMF Boosts China’s 2024 Growth Forecast to 5% Amid Strong Start

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The International Monetary Fund (IMF) has raised its forecast for China’s economic growth in 2024 to 5%, up from its earlier estimate of 4.6%.

This adjustment reflects a robust expansion at the start of the year and additional government support aimed at stabilizing and invigorating the economy.

The IMF’s latest projection aligns with China’s target growth rate of around 5% for the year.

The upward revision comes on the heels of a better-than-expected 5.3% growth in the first quarter, indicating a strong recovery trajectory despite ongoing challenges in the housing market, which continues to dampen domestic demand.

Gita Gopinath, the IMF’s First Deputy Managing Director, highlighted the dual forces driving this positive outlook.

“We certainly are seeing that consumption is recovering, but it has some ways to go,” Gopinath noted in a recent interview with Bloomberg News.

“The strength we’re seeing in public investment remains. Private investment is still weak, mainly because of the weakness in the property sector.”

The IMF’s statement emphasized the need for Beijing to enhance monetary and fiscal support, particularly addressing the protracted housing crisis.

Gopinath underscored the urgency of protecting buyers of pre-sold unfinished homes and accelerating the completion of these projects to stabilize the sector.

Earlier this month, Chinese authorities unveiled new measures to support the real estate market.

These include easing down-payment requirements for buyers and injecting 300 billion yuan ($42 billion) of central bank funding to assist local governments in purchasing excess inventory from developers. However, Gopinath argued that these steps should be expanded.

“Fiscal policy should prioritize providing one-off central government financial support for the real estate sector,” she stated, adding that the current low inflation environment offers room for further monetary easing.

Beyond the domestic landscape, the IMF is also monitoring the implications of international trade tensions. Gopinath expressed concerns over the rising number of trade restrictions globally, noting that about 3,000 new trade barriers were introduced in 2023 alone, triple the number in 2019.

These developments are contributing to an emerging trend of geopolitical fragmentation in global trade.

“There has been an increase in more restrictive trade policies across countries,” Gopinath said. “Trade across countries that are more geopolitically aligned is holding up better than trade across countries that are less geopolitically aligned.”

The IMF’s revised forecast underscores a cautiously optimistic outlook for China’s economy.

While strong public investment and government support are driving growth, the ongoing weaknesses in the property sector and global trade tensions present challenges that need to be carefully navigated.

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