The Dangote Kite on NLNG, By Chido Nwakanma
What kind of advice is it to say to Nigeria please sell your most viable investment to raise cash? The investment is already delivering cash. So what would be the point of divesting? Why not divest in so many other entities that return sub-optimal results? A fire sale of the NLNG? No one brings his best asset to a fire sale.
Nigeria’s leading industrialist Alhaji Aliko Dangote last week flew a kite. He advised the Federal Government to sell Nigeria LNG Limited (NLNG) to raise cash.
It is a curious proposition. NLNG is the best investment Nigeria currently has. It runs smoothly and delivers dividends to its four shareholders.
Shareholders incorporated NLNG in 1989 “to harness Nigeria’s vast natural gas resources and produce Liquefied Natural Gas (LNG) and Natural Gas Liquids (NGLS) for export”. It has wholly owned subsidiaries in Bonny Gas Transport (BGT) Limited and NLNG Ship Management Limited. It bought ships and runs them.
Its six trains can produce 22 million tonnes per annum of LNG and 5 MTPA of NGLS (LPG and condensate) from 3.5 billion (standard) cubic feet per day of natural gas intake. The natural gas comes through a pipeline cutting across 100 communities.
Nigeria’s politics has hobbled the construction of a seventh train for close to four years now. It would have raised production to 30 million metric tonnes per annum. The company supplies about 80 percent of the annual domestic LPG (cooking gas) consumption.
Ownership of NLNG lies between the Federal Government of Nigeria, through NNPC, 49 percent; Shell, 25.6 percent; Total LNG Nigeria Ltd, 15 percent, and Eni, mother company of Agip, 10.4 percent.
This is the point. Nigeria alone does not own NLNG. The planners deliberately skewed the shareholding structure in a manner as to give a slight majority to the technical partners to minimise political interference and allow the firm operate successfully. It has worked well thus far. Dividends from NLNG have become crucial to the federal purse. In 2014, NLNG remitted over N200 billion for its 2013 Company Income Tax (CIT) to the Federal Government, making it the highest Company Income Tax ever paid by a company in a financial year in the country. Its dividends of $12.9 billion, paid through the NNPC, was the subject of congressional enquiry earlier this year.
These are the kinds of statements and policy choices that are driving away investors and making existing investors jittery. The witch cried last night. Will the child die today? It does not sound right to my ears. Clarification needed.
Aliko Dangote is no ordinary citizen or average business person. When he speaks, governments in Nigeria, and now across Africa, pay attention. When Citizen Dangote, a potentate, flies a kite such as this, every one must pay attention for its import. Could it be for good or ill? What does it portend? Could it be that this Federal Government would unilaterally change the structure of the company and “sell it” off to willing investors, with Dangote Industries as a prime candidate? Alternatively, will the government merely sell its 49 percent stake? Does an astute investor like Dangote not know that Nigeria alone does not own NLNG?
The newspapers reported Dangote as stating, “My own suggestion before was that they should even sell 100 percent of NLNG. I don’t think government should be in any business of investing in sectors of LNG. A company like that with earnings of $1.5 billion on the average, they should get anywhere between $12 billion and $15 billion.”
The Governor of the Central Bank soon after echoed Aliko Dangote. He also spoke of the Federal Government selling NLNG.
Both important personages spoke as if Nigeria alone owns NLNG. There was no nuance to their declarations, no indication that other parties are involved. The CBN governor indicated that government was considering making a fire sale of the NLNG asset. He spoke of government realising $10 billion from the sale, down from a projected $15 billion if government has sold earlier. Curiouser and curiouser.
What kind of advice is it to say to Nigeria please sell your most viable investment to raise cash? The investment is already delivering cash. So what would be the point of divesting? Why not divest in so many other entities that return sub-optimal results? A fire sale of the NLNG? No one brings his best asset to a fire sale. While you make a fire sale because of an emergency, you do not sell off the few assets that would enable you to survive. By definition, you dispose of an asset at prices below their fair market value in a fire sale. With the CBN governor also mentioning the same thing, it seems the matter is already decided. When you sell your stake in NLNG today, and the dividends no longer come to Nigeria, what would you sell in two years’ time?
While experts say selling assets is a good move, they usually prescribe the sales of non-performing assets. Not your prime assets with good track record.
There is more to this kite. These are the kinds of statements and policy choices that are driving away investors and making existing investors jittery. The witch cried last night. Will the child die today? It does not sound right to my ears. Clarification needed.
Chido Nwakanma is a marketing communications and media consultant.