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Oando sells downstream business in $461m deal

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Oando Plc has reached definitive agreement to sell the majority equity stake in its downstream business to HV Investments, a joint venture owned by Helios Investment Partners and The Vitol Group. In a deal valued at $461 million. Oando is selling 60 per cent economic rights (equity stakes) and 49 per cent voting rights to HV Investments.

Oando confirmed the sale agreement on Tuesday in a regulatory filing at the Nigerian Stock Exchange (NSE). Oando, Nigeria’s leading indigenous energy group and the largest integrated energy solutions group in sub-Saharan Africa, is listed primarily on the NSE. It however has a secondary listing on the Johannesburg Stock Exchange. Oando’s share price dropped by 1.26 per cent Tuesday at the NSE.

Under the terms of the transaction, HV Investments (HVI) will acquire 49% of the voting rights and 60% of the economic rights in Oando’s downstream businesses for $276 million. The remaining 51% of the voting rights will be held by Oando and a Nigerian Helios Affiliate in the ratio of 49% to2% respectively, indicating that HV Investments may end up having the majority voting rights, given its relationship with Helios Investment Partners.

The total consideration of $461.3 million will be funded by a $276.8 million cash contribution from HV Investments and $184.5 million in preference shares issued to Oando Plc, subject to customary purchase price adjustments, including working capital and long-term debt. On completion, HVI and Oando will each have 49% voting rights and a Nigerian Helios Affiliate 2% voting rights.

Struggling with high leverage, Oando will apply the proceeds of the divestment to reducing its debts.

Group chief executive, Oando Plc, Mr Wale Tinubu, described the deal as an exciting development in downstream West Africa noting that by working with Vitol and Helios, Oando has repositioned Oando downstream for a new era of investment growth and profitability.

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“Importantly, the divestment enables Oando Plc to focus on its upstream and midstream businesses. Even as proceeds of the sale will be applied almost entirely to reducing Oando’s leverage, we underscore the portfolio rationalization achieved alongside the balance sheet optimization,” Tinubu said.

During a mid-year teleconference with investors and analysts in July 2014 to announce the conclusion of Oando’s game-changing $1.56 million acquisition of ConocoPhillips Nigerian assets, Tinubu had hinted at the probability of a shift in Oando’s strategy to focus on the implementation of a three-pronged approach to reduce debt, diversification into the higher margin upstream, and an increased growth margin value for shareholders through an augmented production portfolio and cash flow.

Analysts indicate that Oando PLC had decided against an outright sale of its downstream subsidiary, but entered into an agreement with HV Investments due to the strategic partnership, accelerated expansion, and increased investment on offer.

“This partial equity agreement presents a unique opportunity for a significant growth in the size and scale of our operations, while substantially strengthening our position in the downstream sector. Though we employ a multifaceted approach across the energy value chain, we have immense pride in our origins as a predominantly downstream company, and we had no reason to sell, as our brand deeply resonates with many in Africa and globally,” Tinubu said.

The Oando downstream business included Oando Marketing Plc, a petroleum product retailing and distribution company with over 400 retail outlets and strategically located terminals in Nigeria, Ghana and Togo; Oando Supply & Trading Limited, a leading indigenous physical trader of petroleum products in the sub-Saharan region, supplying and trading crude oil and refined petroleum products; Oando Trading Limited, an entity involved in the trading of crude oil and refined petroleum products in international markets; Apapa SPM Limited, the marina jetty and subsea pipeline system capable of berthing large vessels that will increase the delivery capacity and offloading efficiency of petroleum products into major petroleum marketers’ storage facilities at Apapa, Lagos; and Ebony Oil & Gas Limited, the Ghanaian supply and trading entity with a provisional bulk distribution company license supplying white products.

“To our minds, the move is logical. First, Oando’s exploration & production ambitions are well on track upon the completion of the acquisition of ConocoPhillips’ Nigerian business interests in 2014. Second, the downstream business in Nigeria is a low-margin industry, plagued by subsidy payment delays and constraining government policy and third, the cash raised from this transaction would likely be used to partially de-leverage Oando’s balance sheet.

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“Although the market has shown little reaction to the announcement, we would expect a rally in the stock over coming days,” Uwadiae Osadiaye, a chartered financial analyst with FBN Capital stated.

With the global trends and domestic challenges facing indigenous oil & gas companies, Oando has steadily navigated the ups and downs of the cyclical oil & gas market by adapting quickly and being fiscally innovative to enable its business operations run as normal, resulting in a market capitalisation of over $1 billion and 2013 revenues of $2.9 billion.

Oando through its exploration and production subsidiaries holds interests in 19 licenses for the production, exploration, and development of oil and gas assets located onshore, swamp, and deep offshore. Its energy services business is an indigenous provider of oilfield services to operators in the oil and gas industry in Nigeria.

In the midstream, Oando Gas & Power is the largest private sector natural gas distributor and developer of Nigeria’s foremost natural gas distribution network, distributing and selling natural gas to industrial and commercial off-takers in Nigeria; in addition to developing and operating power plants. The downstream division consists of Oando Marketing, Oando Supply and Trading and Oando Terminals, which together are the leading indigenous suppliers and marketers of petroleum products in Sub-Saharan Africa.

The Oando group has primarily focused on the growth of its Nigerian-based assets portfolio in the last year, including viable opportunities that optimise its operations, delivery, and Upstream footprint such as the ramp up of its production from 5,000 boep/d pre-acquisition of ConocoPhillips Nigeria to its present output of 53,100 boep/d.

Helios Investment Partners is an Africa-focused investment firm managing funds totaling over $3 billion. Helios’ diverse LP base comprises a broad range of the world’s leading investors, including sovereign wealth funds, corporate and public pension funds, endowments and foundations, funds of funds, family offices and development finance institutions across the US, Europe, Asia and Africa.

Established in 2004, led and managed by a predominantly African team and based in London, Lagos and Nairobi, Helios has completed investments in countries across the African continent, including Nigeria, Ghana, Kenya, Tanzania, Angola, South Africa and Morocco. Helios’ portfolio companies operate in more than 35 countries in all regions of the continent. Helios bridges international capital and know-how to African talent and enterprise. The firm has a record of successful investment in businesses from start-ups to large corporate carve-outs, building African market leaders in core economic sectors and driving strong returns via portfolio operations.

The Vitol Group was founded in 1966 in Rotterdam, the Netherlands. Since then the company has grown significantly to become a major participant in world commodity markets and is now the world’s largest independent energy trader. Its trading portfolio includes crude oil, oil products, LPG, LNG, natural gas, coal, electricity, agricultural products, metals and carbon emissions. Vitol trades with all the major national oil companies, the integrated oil majors and the independent refiners and traders. Globally, Vitol trades over 5 million barrels of crude oil and oil products per day and revenues in 2014 were $270 billion.Ripples… without borders, without fears

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