Dangote Refinery financing takes 9% of banks’ FX loans

Nigerian lenders are in the forefront of providing financing for a major industrial project; the Dangote Greenfield Refinery and Fertilizer Complex on the outskirts of Lagos, with the single project accounting for 9 percent of the Tier – One banks FX loan book or $1.45 billion.

Access Bank, Guaranty Trust Bank and Zenith Bank are the top local backers of the project with the banks providing $350m each for the development that is expected to be operational by 2017.

Other major lenders that participated in providing financing for the landmark project include First Bank of Nigeria (FBN) ($200 m) and UBA ($200 m).They also include Ecobank: $200m, Fidelity: $150m, Diamond: $100m and FCMB: $100m.

The FX loan may also have been sourced at a seven- year maturity, according to sources, with repayments set to begin after three years, or by 2016.

Analysts say Nigerian banks may have been looking at the bigger picture when they chose to play such a big role in refinery business that might otherwise be considered a risky venture in Nigeria.

“The core role of banks is to drive real sector growth in an economy via the provision of short-to-long-term funding. The future of Nigeria is just being redefined,” said Abiodun Keripe, Head of Research and Strategy at Elixir Investment Partners Limited.

“One would wonder why Nigeria does not have effective refining capacity at this age and time. The building of local refineries is just the way to go, as part of a broad programme to diversify the economy.”

The $9 billion complex which will be able to process 650,000 barrels a day when completed, is being financed by $5.5bn in debt and $3.5bn of equity, and the financing amount is apportioned among the projects with the Fertilizer complex costing ($1.5bn) and Refinery ($7.5bn), BusinessDay gathered from sources close to the deal.

Access Bank was a major backer of the project, as it made up 14 percent of its outstanding FX loans as at December 2014.

Access had $2.52 billion (N505 billion) in outstanding dollar loans last year, according to data from its FY 2014 earnings report.

The Dangote Refinery will be powered by clean reliable energy: natural gas from a pipeline 50km away and could provide a decentralised energy plant for the Lekki free trade zone, benefitting other industries as well,” sources told BusinessDay.

Aliko Dangote, Africa’s richest man, said in an interview last week, that he plans to quadruple the supply of gas to Nigeria by investing $2.2 billion to $2.5 billion in two sub-sea 550-kilometer (341-mile) pipelines running from the Niger Delta region to Lagos.

The pipes will increase the amount of gas available in Africa’s biggest economy to 4 billion standard cubic feet per day from 1 billion, he said.

“Having an additional 3 billion scf will sort out all the gas issues we have today in Nigeria,” Dangote, 58, said.

Dangote has said his projects in Nigeria could be generating between $8 billion and $10 billion worth of export earnings by 2018, making it relatively easy to service the loans.

“By and large, the cash flow projection of the refinery is positive and sound. I do not see the banks getting their fingers burnt in this,” said Kayode Omosebi, an analyst at United Capital Limited, in a response to questions. 

Africa is now the world’s fastest-growing oil user, and the International Energy Agency expects oil consumption in the continent to surge about 30 percent to 4.5 million barrels a day by 2018.

Nigeria’s daily consumption of refined petroleum has spiked, as Gross Domestic Product GDP grew steadily at about 7 percent per annum over the past 10 years and its population increased to 170 million people.

Progress on construction of the refinery is also leading to visits at the project site by lenders and other stakeholders.

“Access and other banks have begun periodic visitation (post loan due diligence and discussions with management) at the project site to ensure that the identified risks and impacts and proposed mitigation measures are commensurate with their nature and magnitude,” another source told BusinessDay.