Otedola to sell Forte Oil’s stake in N25b deal

Forte Oil Plc Chairman Femi Otedola is set to sell his entire 75 per cent majority equity stake in the company in a deal estimated at about N25 billion.

Forte Oil yesterday confirmed that Otedola is selling his “full 75 per cent direct and indirect shareholding in the company’s downstream business”. The downstream business accounts for more than three-quarters of the Forte Oil Group, although the power generation business has consistently delivered higher margins.

Forte Oil’s share price rose by 9.84 per cent or N2.80 to close at N31.25 per share yesterday at the Nigerian Stock Exchange (NSE). The maximum daily allowable price change at the NSE is 10.0 per cent.

In a regulatory filing signed by Forte Oil counsel Mr. Akinleye Olagbende, Otedola is divesting his majority equity stake to Prudent Energy team, which will be investing through Ignite Investments and Commodities Limited.

According to the company, Otedola’s divestment from the downstream business is pursuant to his decision to explore and maximize business opportunities in refining and petrochemicals. Otedola is a close friend of Alhaji Aliko Dangote, Africa’s richest man, whose multi-billion naira refinery is billed to commence operations within the next 25 months.

The divestment is expected to be concluded in the first quarter of next year subject to receipt of applicable regulatory approvals and material conditions.

The divestment is a major u-turn for Otedola who had earlier in May secured shareholders’ approval to divest the group’s upstream services and power generating businesses as well as its downstream business in Ghana in a restructuring aimed at streamlining Forte Oil’s operations to focus on its Nigerian downstream marketing business.

Otedola’s Zenon Petroleum and Gas Company Limited and Thames Investment Incorporated are the major shareholders in Forte Oil, a legacy company that was privatised by the Federal Government. Forte Oil was incorporated in December 1964 as British Petroleum and became African Petroleum under the nationalisation policy of the Federal Government in 1979.

While details of the transaction are still sketchy, market analysts estimated the 75 per cent divestment deal at about N25 billion, on a straight-line, market-based fair value estimate. Forte Oil has traded at highest and lowest market value of N74.5 billion and N21.74 billion in the past 12 months. It closed yesterday with a market value of N40.70 billion.

Forte Oil Group includes the downstream parent company and three subsidiaries-Forte Upstream Services Limited, AP Oil and Gas Ghana Limited, two wholly owned subsidiaries; and Amperion Power Distribution Company Limited, where Forte Oil holds 57 per cent majority equity stake. Amperion Power Distribution Company Limited holds the majority equity stake in the lucrative Geregu Power Plc.

Key extracts of the nine-month interim report and accounts of Forte Oil Plc for the period ended September 30, 2018 showed a group turnover of N123.33 billion. Gross profit stood at N18.98 billion. The downstream business accounted for N94.81 billion turnover and gross profit of N8.46 billion. The power business accounted for turnover of N24.4 billion and gross profit of N9.44 billion.

Key balance sheet items showed group total assets of N147.9 billion and total liabilities of N83.52 billion by September 2018, leaving shareholders’ fund at N64.38 billion. On segmental basis, the parent company’s standalone balance sheet showed total assets of N66.11 billion against total liabilities of N52.62 billion, leaving total equity of N13.5 billion by the close of business on September 30, 2018.

“We concluded on focusing our resources on our core competence, and streams of uninterrupted dividends for our shareholders,” Otedola had told shareholders in May 2018 while pushing for a group divestment plan.

Shareholders thus authorised the board of the company to sell its stakes in Forte Upstream Services Limited, Amperion Power Distribution Limited and AP Oil & Gas Ghana Limited. They mandated the board of directors to invest the net proceeds from the divestments in the downstream marketing business.

Otedola had said the restructuring was aimed at ensuring sustainable growth and returns to shareholders.

Underlining the rationale for the strategic business change, Forte Oil had said its decision to divest from upstream services and power generating businesses will boost its distributable earnings for the benefit of shareholders.

According to the company, following the significant changes in the oil and gas industry in recent years, only downstream operators with huge investments in both storage and distribution infrastructures can remain competitive and operationally efficient in the long run.

Forte Oil noted that that although the power business is profitable,  it has  huge receivables due from the Nigeria Bulk Electricity Trading Plc (NBET) and a significant portion of its distributed earnings is also utilised in servicing the acquisition debt finance.

The company said despite the significant resources deployed in the upstream services, the business has consistently contributed less than seven per cent  to the Group earnings in the last three financial years.

Similarly, its downstream subsidiary in Ghana has consistently declared losses after tax in the last three years and   has substantial bad and uncollectable trade debts as a result of negative economic conditions and currency devaluation in prior years.

“This divestment a will reduce finance cost in the Group significantly and increase distributable earnings for the benefit of the shareholders. The finance cost attributable to the businesses to be divested stood at N2.7 billion and N2.2 billion for the year ended 31st December 2016 and the year ended 31st December 2017 respectively. The proceeds of the divestment initiative will also enable your company to compete more favourably and achieve the planned expansion of the business for increased market share,” Forte Oil stated.

Forte Oil had in 2017 suspended a N20 billion new equity issue, after it had received regulatory approval. The company was also downgraded by Morgan Stanley Capital International (MSCI from its Main Frontier Markets Index, following the steep depreciation in share price that saw the oil company closing among the year’s top losers.