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When questioned at the AGM about the NGN issue, AK clearly stated that this would work in our favour. Can anybody on here correlate his comments to what has been stated in the RNS today?
Hi, Rocky
I think the expectation was that the removal of the peg would result in a liquid currency. This would have allowed management to switch the majority of the Naira spot into dollars and pay down a decent chunk of the debt. The result would have been less fx exposure (obviously) but also a more modest interest expenditure burden. We'd have continued paying down aggressively as the Migerian customers paid on the contracts.
However, it appears that despite the significant devaluation, Naira remains illiquid and off-loading spot in size (for anybody) isn't really happening. The ongoing difficulties in restructuring the debt would appear to back this up. The local banks don't want the Naira either, it would seem.
After the huge devaluation when the peg was removed, Naira appears to have stabilised. Maybe someone more familiar with Nigerian domestic business can advise if that is expected to remain the case. Is central bank intervention keeping it there?
I remain skeptical on the ability to secure the debt restructuring.
The company is not managing well at all its messaging to the investor base. Instit-to-board member conversations must be quite frank here.
Nick Beattie: where are you?
CYB - TY as I don’t understand that stuff very well. Here is another summary note I just found on here. I’m looking hard for some positives here but am struggling to find any:-
Savannah Energy PLC - London-based energy company, with projects in Cameroon, Chad, Niger and Nigeria - For the six months to June 30, pretax loss widens to USD56.9 million from USD11.3 million a year prior. Revenue climbs 44% to USD123.7 million from USD85.8 million. However, expected credit loss increases to USD33.8 million from USD5.9 million. Finance costs increase 41% to USD51.8 million from USD36.8 million. Notably, Savannah incurs a foreign translation loss of USD54.0 million in the first half of 2023, ballooned from USD846,000 a year prior.
Where’s zone? Where are you? Would have expected your posts.
Hi Guys
Like many here I'm also an investor and appreciate all the great contributions from the likes of ZENGAS, RR etc and long may that continue. Have not contributed to these forums before but felt it was justified given some of the statements I am reading today. Just some quick points from me:
1) on the Naira devaluation, this along with removal of fuel subsidies was a very important requirement which has put Nigeria on a positive fiscal path. This will allow Nigeria to reduce its fiscal deficit, boost FX reserves and as was mentioned before boost naira liquidity. On the liquidity aspect this is happening but slower than expected. The markets have also taken a positive view on these events with Nigeria USD bonds rallying hard and Nigeria CDS (insurance against default) tightening from a high of 1,250 (may ) to its current level of 757. Yes its still high, but much improved
2) Accugas gas contracts are long dated (15 years) with stable pricing which is denominated in USD. This will help with the refinancing. If you ignore all the exploration/ M&A stuff and just focus on core biz, its pretty solid stable stuff.
3) Yes the big FX loss is very frustrating and Im annoyed that such a large proportion of their cash balance was held in Naira and not all held offshore in USD, but it is what it is. This was a one-off hit and does not reflect the cashflow generating abilities of the Nigerian gas assets which continue to do well. As you will have seen, post balance sheet date, new contracts continued to be signed. EBITDA also increased by 8%
4) on the risk of refinancing. The accugas debt facility (USD denominated and majority of bank loans) matures in Dec 2025. Thus we are not quite in panic stations yet. There is still amply time to explore various finance options. If mgmt are saying they already have a termsheet prepared with a group of lenders than that is a good sign. In theory FX risk should not affect this business given contracts are USD denominated, and currently the biggest chunk of the debt is in USD. The problem arises from the requirement to accept Naira from local customers on those USD denominated gas contracts which creates a short term liquidity risk. Yes that risk hit us hard, but this huge Naira devaluation enacted by the Nigeria Central bank was a massive on-off and unlikely to be repeated.
5) yes the company has alot of debt but Net debt/EBITDA is only 1.9x. Given the long reserve life of its gas assets, stable pricing and 15yr contract length, that’s not a very high net leverage figure. When I got involved with this company in 2020, net debt/ EBITDA was closer to 6x.
6) Alot of the cashflow in H1 2023 was eaten up by adverse movements in working capital mostly related to a big increase in receivables. Results point out that this is expected to reverse in H2 which should help with free CF generation and debt reduction
Anyways chin up lads, hope ive added some decent colour. Good luck all.
WOW Scotpak - a member on here for 3 years and your 1st ever post today, and what a fantastic post it was. where do you get your vast knowledge from mate - it’s awesome. Thanks for your post today and will you be helping to keep the board balanced and informed by posting a bit more and sharing your knowledge and views with us? I certainly hope so as people like you help keep people like me motivated and sane.
Thanks for the kind words RR. Will try to contribute on a more frequent basis.
Thanks scotpak, a very well thought out and reasoned post.
Please keep your views coming.
Welcome Scotpak - I concur with rocky and zengas keenly your posts coming, and brilliantly articulated
Been locked off grid most of the day. Understand the concerns but personally am chilled. Naira was a one off charge, so frustrating but no more than that. Most of the issues have been discussed and can see both sides. AK has a lot to lose if this doesn't work out and when choosing an investment the CEO is right up there as possibly the most important consideration. I'm pretty much in the Zengas camp in terms of views today, and certainly not worried long term about this investment. Back on Monday when I'll have WiFi again!
Scotpak a warm welcome and your early input is balanced articulate and well informed. I hope you continue and become a regular contributor and join the existing "gang" who provide so much quality research and keep us well informed
Agreed Komakino - The accugas business is resilient I think most on here would agree that H2 numbers will bring the net debt number back towards the downside as the baits charge was a one off.
I guess most on here now that there is still value in this business with Nigeria alone to be greater than our suspended price.
A lot of the sentiment is frustration around going into suspension without anything to show for……………………
Also one would hope with the number of individuals that have joined the business from lawyers to geologist to corporate staff to field staff that there would be significant news flow that would correspond to the headcount build. Granted AK May be focused on closing deals. But I expect others within their business to pull their weight as well specifically in Nigeria…………………
I believe the thought process for the continued extensions are AK knows this is probably the last window of suspension he will get to bring in a significant deal in successfully. Otherwise there would be major push back to come to market without a deal and then ask for a suspension again which takes a few more months. So I believe the thought process would be to extend the current window to bring a deal home. Now we can all guess whether that’s South Sudan or another asset but I believe that’s probably the high level thinking