Heavy Debt Burden: Banks suspend funding for Dangote’s cement project

A heavy debt burden and the anticipation of high profile competition for the share of the Nigerian cement supply side from Femi Otedola may have compelled Alhaji Aliko Dangote to call off investments with intent to expand production lines in his many cement manufacturing plants and to build new ones. Sources in the banking industry indicated that some bank’s exposure to Dangote have become quite high and more discomfiting for the banks in consideration of hurdles they would have to contend with in the effort to get the debt repaid.

Though Forbes Magazine had listed Dangote as the richest man in Nigeria in 2007, financial sector source said his total debt folio drawn from various Nigerian banks may add up to N622billion. According to the source, about N300billion was secured from a bank by Dangote to play in the stock market between February and March 2008 when prices of stocks were at their peak.

“Prices of stocks started falling soon after the investment in the stock market and the fall in prices have become protracted which has resulted in stock prices sliding to historic lows. This, apparently, has affected the repayment traction of Dangote and this had added to the depressing situation of the banks that gave out the fund,” the source explained.

According to the source, Dangote also secured a N75billion loan for Obajana Cement and N240billion for his cement production plant in Ibeshe while also funding his Alheri Engineering, the company that won the 3-G GSM licence and will manage the GSM telephony service provider in the Dangote group.

Dangote’s decision to beat a retreat from cement manufacturing besides Nigerian banks refusing to make their money available for his use, is the wholesale opening up of the supply side of cement through the cement importation scheme of the Federal Government.

Dangote had enjoyed near monopoly status on the supply side of cement in Nigeria, and not a few aspiring builders had protested persistent increase in the price of cement which got to a high of N1,800 mid 2008. The Federal Government under Alhaji Umar Musa Yar’Adua removed the protectionist policy of the Olusegun Obasanjo’s presidency which banned the importation of cement into the country and closed down some other Nigerian cement producing companies ostensibly to protect the manufacturing essence of Dangote Cement production subsidiaries and the other players in the sector.

“This did not help price at all, because just a few producers can come together to determine the price of a bag of cement,” an industry player told FORTUNE&CLASS Weekly.

The Federal Government’s bid to beat down the price of cement by flooding the market with imported brands may have started impacting the market as the price of a bag of cement has come down to about N1,500 even as the imported brands are yet to fully land in the country.

Industry buzz, however, suggests that Dangote may also be worried with the licence granted Femi Otedola by the Federal Government to import two million tonnes of cement into the country as part of the effort to crash cement prices.

“The Federal Government had to consciously look out for a Nigerian business that has enough cash to back up the importation. It would not make sense to allow for importation of cement when you don’t have high profile business people that can mobilize enough funds to flood the market in the shortest possible time. That is why I think the Federal Government gave Otedola the licence to be involved in the importation of cement and I think he has a commitment to the Federal Government to sell at very cheap rate to Nigerians,” a source in the Presidency said.

Advertisements

FINALLY, OTEDOLA BREAKS MONOPOLY WITH 2MILLION TONNES OF CEMENT

The persistent rise in the price of cement, an essential building material, may be heading for a reverse with the Federal Government approval granted Femi Otedola to import 2million tonnes of cement into the country.

The cement which a source close to the CEO of Zenon Oil and Gas said will soon land in Nigeria, is believed to be one of the Federal Government strategies to in the short run avail the Nigerian market cheap supply of cement.

“Of course, the Federal Government is aware of the fact that hitherto, the supply side of cement is controlled by a close knit community of suppliers who had turned cement supply into an open monopoly.” The source said.

“Though Federal Government had lifted the ban on importation of cement since January as part of the strategies to correct the shortfall in the supply of cement believed to be in the region of 11.5million tones, the efforts of the first batch of companies granted the right to import have not shown yet in the market. I think due to a combination of liquidity crunch in the nation’s financial sector and the global financial crises which have made access to credit a tasking process, most of these players might not have been able to bring in enough supplies of cement into the country. Naturally, the Federal Government had to make overtures to Mr. Otedola, who, they think has enough liquidity to break the strangle hold of the monopoly that cement supplies had turn.” The source revealed.

The source further added that the importation of cement by Otedola is going to be a continued process until the price of cement becomes affordable to the common man.

“This, I think, is going to be the first in the process to crash the price of cement. I am informed that the price of the first importation to be undertaken by Otedola should sell between N600 and N700, the calculation has been done. I think that after this consignment, others would be brought into the country until the price of a bag of cement becomes affordable to the average intending home owner.” The source added.

In response to a question on the impact of wholesale importation of cement to local cement manufacturing capacity, the source reasoned that the importation policy is an interim measure to assuage the difficulties in the building sector.

“I don’t think it is proper to allow Nigerians to wallow in the difficulty of unrealized dreams in real estate because local capacity has to be protected. Nobody is stopping the growth of local manufacturers, I know that government is encouraging that aspect of the sector by also opening up the space to intending manufacturers who are also given adequate incentive, the importation is an interim measure as I had said, to bring down price in the immediate.” The source submitted.

DANGOTE FIGHTS BACK

Businessman extra ordinaire, Alhaji Aliko Dangote has engaged his lawyers to sue some media houses for maligning his name and putting him in bad light before the public.

 

Dangote’s determination to hit at these media houses under the soft sell genre is because he believes that the tilt of the story over his recent face-off with his erstwhile friend – Femi Otedola may have been orchestrated by latter.

 

Prior to that, he had sent volume of unsolicited gift – sugar, pasta, which met with the journalists’ surprise as it is viewed as Greek gift.

 

Days after the story that may have prompted his action was revealed, as it was published “after we investigated, the undercurrents”, we gathered.

 

The battleline is drawn as Dangote is determined to go the whole hug, the media houses are confident in readiness for the challenge as they insist, “we are sure of our facts, we remain unbowed.”

CHEVRON CORPORATION BACKS OUT OF SALE OF CHEVRON NIGERIA TO DANTATA

When on 19 September, 2008 the media relations unit of Chevron Corporation USA circulated a press announcing that its subsidiary, Chevron Africa Holdings Limited had agree to sell Chevron Nigeria Holding to Corlay Global SA, the press release carried a caveat in compliance with the Cautionary Statement Relevant to Forward-Looking Information for the Purpose of “Safe Harbor” Provisions of the Private Securities Litigation Reform Act of 1995.

The cautionary statement informed readers that:

“Some of the items discussed in this press release are forward-looking statements about Chevron’s activities in Nigeria. Words such as “anticipates,” “expects,” “intends,” “plans,” “targets,” “projects,” “believes,” “seeks,” “estimates” and similar expressions are intended to identify such forward-looking statements. The statements are based upon management’s current expectations, estimates and projections; are not guarantees of future performance; and are subject to certain risks, uncertainties and other factors, some of which are beyond the company’s control and are difficult to predict. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. Unless legally required, Chevron undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.”

The caveat may just be appropriate because in the wake of the announcement of the agreement of sale of the downstream operations of Chevron Nigeria to Sayyu Dantata’s MRS, the intensity of the legal battle which had dogged the process of bidding for the 60 percent holding of Chevron Corporation held through Chevron Africa, moved some more notches and in the light of this, it is believed that the Chevron is considering appropriate channels to announce a reversal of its announcement.

Femi Otedola, Zenon Oil and Gas and Africa Petroleum Chairman had secured an injunction at a Lagos Federal High Court restraining Chevron from selling the 60 percent holdings without recourse to his 19 percent minority holding which, he claimed, may be jeopardized if the contested 60 percent holding was sold to another bidder who may lack the required expertise and resources to profitably operate the business.

Despite the injunction, Chevron parent office in San Ramon in the United States of America had gone ahead to announce the agreement to sell to Dantata’s company in defiance of the court order. Industry insiders reasoned that the announcement might have been a pre-emptive move to undermine the legal process in Nigeria. But beyond this consideration, industry insiders have argued that Chevron must have been emboldened to make the announcement in consideration of the influence of the backer of Sayyu, a profiled wealthy industrialist whom Chevron believes could pull the right strings in Nigeria to side-step the court proceedings and to also get the backing of the political power base in the country to talk Otedola into surrendering his claims to Chevron.

As was expected, Otedola initiated, through his lawyers, contempt proceedings against Chevron at the Federal High Court but last week Wednesday, he dramatically applied to withdraw the contempt proceeding in the court. This had sent some confusing signals to a growing population of the bid for Chevron.

A source close to Otedola, however, informed that the withdrawal of the contempt charge was strategic.

“The contempt proceeding had to be withdrawn because it may turn out to be a distraction from the main issue of the case.” The source said.

Another source believes that application to stop the contempt proceeding in court may not be unconnected with new revelations that Chevron Corporation, the parent company of Chevron Nigeria may have, indeed, stalled the process of transfer of the 60 percent holding in Chevron Nigeria to Dantata’s MRS in part, because of the on-going legal tango, and in part, because the required sum of money to consummate the purchase have not been made to it.

“The fact is that most Nigerian banks that are supposed to finance the acquisition have backed out, so it’s as if it is difficult to raise the fund locally.”

Any one of the two reasons for the reported abortion of the sale agreement might have thrown the spanners into what the initiators of the MRS bid for Chevron had planned by way of making the Nigerian public pay indirectly for the funding of the 60 percent shares of Chevron Nigeria.

“The strategy to my mind is simple. If the banks financed the acquisition of Chevron, it would have been easy for Sayyu and his backer to pay back the banks simply by selling 25 percent of the holding of Chevron to Nigerian investors through the Nigerian Stock Exchange. This way, they will still hold majority holdings in the company and they would have used money raised from ordinary Nigerians to pay back the money the banks used to finance the initial acquisition.” The source reasoned.

Meanwhile, Chevron has also made public its intention to sell its downstream operations trading under the Caltex brand name in Kenya.   According to AP, the front runners eyeing Chevron’s elaborate retail network include State-owned National Oil Corporation of Kenya and Gulf Africa Petroleum Corporation (Gapco). The two control a paltry 3.65 per cent and 2.65 per cent retail market share respectively.

Speculation is also rife that the cash-rich Oil Libya is equally an interested party, perhaps seeking a foothold in the Mombasa-based Kenya Petroleum Refinery Limited (KPRL), which has been much sought after by big multinationals, and is partly owned by Caltex.

The law, as spelt out under the Kenya’s Energy Act, requires Chevron to notify the Energy Regulatory Commission (ERC) of its intention to divest or transfer the licence to another oil marketer.

Previously, only the Treasury was notified in the event of divestiture by any firm.

“If the sale of Chevron will be through competitive bidding, this process may take some time to be concluded,” said Mr Peter Nduru, Head of Petroleum at ERC.

Treasury is reportedly pushing for Chevron to sell off only its Kenyan business unit to National Oil, despite plans by the global petroleum giant to sell its Kenya and Uganda operations as one bundle.

The AP report, however, observed that unlike in Kenya, this sale transaction on Chevron Nigeria was closed quickly when Chevron Nigeria hurriedly announced the agreement to sell to MRS.

AFTERMATH OF FALL-OUT WITH DANGOTE:FEMI OTEDOLA SEEKS ALLIANCE WITH JIMOH IBRAHIM

A re-alignment of business interests and affiliation is believed to be in the offing and it involves three of Nigeria’s most celebrated billionaires. In recent times, the news have made the rounds of a business skirmish between Alhaji Aliko Dangote and Mr. Femi Otedola, both had been known to be buddies and have been reported to have jointly engaged in business ventures over the last five years.

The chummy relationship between the two, however, is believed to have been embroiled in suspicion and a brickbat of sort on account of Dangote pitching his support for his kinsman, Sayyatu Dantata over the acquisition of the majority shareholding in downstream Chevron Nigeria Plc, a shareholding in which Otedola had confided his interest in Dangote.

Reports close to Otedola and Dangote indicated that on the heels of Dangote’s preference for Sayyatu, Otedola might have to go his way in matters of business relationship with Dangote, the officially profiled richest man in Nigeria.

But then, in the context of doing business in Nigeria where government influence is all pervading, a businessman must understand the act and intricacies of balancing power plays by networking with power players.

“Of course, you know that political power and influence determine a lot of things in business in Nigeria,” a source told FORTUNE & CLASS Weekly. “So to survive in business at the level these people operate, you have to know the right people and understand how to continue to pander to their needs. The relationship between Otedola and Dangote was principally predicated on this kind of facilitation. For instance, during the presidency of Chief Olusegun Obasanjo, the two had enjoyed some privileges of state support because Otedola enjoyed the favour of Obasanjo. Obasanjo extended his favour to Dangote because he was friend to Otedola, who is his Yoruba southwest kinsman. And since Nigeria’s democracy has a peculiar command structure, everybody within the circle of the Obasanjo’s presidency had to extend all the courtesies of power to the two businessmen,” the source explained.

With the shift of power to Northern Nigeria, our source reasoned that the centre of power influence revolves around a core group of Northerners and until the disagreement that unravelled the relationship between Dangote and Otedola, the two had farthered their business interests by acting together to relate with individuals that influence the power structure.

“With the parting of ways with Dangote, Femi must naturally form new alliances because he has grown quite massively in the business sector. And if I must tell you, the fact is that not many people are happy with big time players if they are not within the circle of the influential,” FORTUNE & CLASS source reasoned.

According to reports gathered last week, there are strong indications that Otedola, who owns Africa Petroleum, one of the country’s largest downstream sector operations and other long list of A-class business entities, might be gravitating towards Barrister Jimoh Ibrahim, the billionaire core investor in the nation’s biggest insurance concern, NICON Insurance.

“I understand that the two have started talking and I think it is natural. Barrister Ibrahim has survived a most violent onslaught by some adversaries in business and government. Do not forget that his business troubles started during the presidency of Obasanjo despite the fact that he, like Obasanjo, is from the Yoruba speaking southwest. This did not stop the presidency from contending with him on a number of issues that culminated in his sacking from NICON where he had invested so much. But as it turned out, he was able to resolve all the contentious issues and regain control of the company. And to top it all, he became quite friendly with the current president, Umar Musa Yar’Adua,” another source gushed.

“I think the two would find common ground to relate,” the source further asserted. “This is because the two of them are involved in the downstream sector of the oil and gas sector and are adventurous enough to pursue their business expansion dreams vigorously. I can say that very soon, the two of them would become a pair if the effort of elders facilitating the alliance is successful,” the source said.

BETRAYAL! WHY OTEDOLA, DANGOTE FALL APART

The prospect of Mr. Femi Otedola and Alhaji Aliko Dangote engaging in direct business competition is already exciting Nigerians across the economic strata.

Until about two months ago, Otedola and Dangote have been known to be buddies in both the social and business senses. A source that had trailed the relationship between the two observed that though Dangote had had preeminence in the nation’s economic sphere before Otedola, but as soon as Otedola emerged in the big league of business owners about six years ago, he and Dangote became a pair both in public places and business alliances.

 In the early days of Transcorp, Otedola and Dangote were on board of the company, positioned back then as Nigeria’s answer to the dominance of the multinationals. Perhaps the most high profile business alliance between the two was the Blue Star Consortium, a special acquisition vehicle the two had used to acquire controlling stakes in the Port Harcourt and Kaduna Refineries. The acquisitions, were, however, revoked soon after Alhaji Umar Musa Yar’Adua assumed the office of the nation’s president.

Beside, though Dangote is known to be the face of Obajana Cement Company, a cement manufacturing concern propositioned to be the biggest in production capacity in Africa, Otedola, his friend has also been mentioned to be part of Obajana in terms of stake holdings.

But now, it would seem that the business collaboration between the two may have been put under pressure arising from what sources close to the very moneyed men describe as betrayal of trust.

 “I think it all has to do with the battle to acquire Chevron Plc, the downstream arm of Chevron Oil and Gas in Nigeria.” A source close to the two said. “Of course, you know by now that Femi had an intense interest in the acquisition of the company. The benefits to him were obvious, if he had acquired Chevron, he would have become the indisputable dominant operator in the downstream sector of the oil and gas industry. He would have merged Africa Petroleum, (a downstream behemoth in its own right after it was merged with Zenon) with Chevron Plc. With the two you can only imagine Femi’s competitive edge in the market place” The source revealed.

“Before the divestment of Chevron Oil and Gas from Chevron Plc was made public, Femi had apparently got information on the move and had shared his desire to buy Chevron with his friend, Dangote. I know that initially, Dangote was all in support of the scheme by Femi to acquire. But that was until Sayyu Dantata came into the picture.” The source said.

Sayyu Dantata, aside being a former business protégé of Dangote, is also related to Dangote, so it would seem natural that the balance of emotions by Dangote would tilt in favour of Sayyu.

“As it turned out, I am not too sure if Femi thought along that line. At least, he and Dangote had been at the Chevron thing for a while so there would have been no suspicion of Dangote’s shift of loyalty. So as the negotiation and bidding for Chevron proceeded, Femi constantly updated on his next moves and strategies. As issues evolved, he got to know that Sayyu’s MRS Group, the company that eventually won the bid was always outflanking him. The long and short of it is that there is the suspicion that Dangote might have availed his cousin, Sayyu of information Femi had shared with him.”

The same source said there had been a confrontation between the two where Dangote explained that Otedola could not have expected him to go the whole hog with him in consideration of his (Dangote) relationship with Sayyu.

“You know these people are matured men, you don’t expect them to bring their small fights to the public place, what I know is that Femi has decided to review and locate any opportunity in the economic space that enable him contribute to the economic advancement of the country. So all these talks about Femi taking on Dangote in competition by deciding to go into establishment of cement manufacturing plant is principally about expanding his business horizon. It has no direct bearing on the role Dangote played in the bid for Chevron.” The source explained.