There are strong indications that banks and other financial institutions are becoming apprehensive over the possibility of recouping their N750 billion investments in the power sector following Federal Government’s reduction of electricity tariff by 50 per cent in parts of the country.
Daily Sun findings showed that the banks had adopted different models in a bid to raise funds to finance the sector.
Among the models adopted by the banks are the sale of dollar-denominated bonds, issuance of Eurobonds and raising funds from the equities market to invest in the privatised power industry.
The banks with huge exposure in the power sector include Zenith Bank Plc, Diamond Bank Plc, Union Bank of Nigeria Plc, Access Bank Plc, Sterling Bank Plc, Skye Bank Plc, Fidelity Bank Plc, Guaranty Trust Bank Plc and First Bank of Nigeria Limited.
Prior to the transaction, Zenith Bank Plc had sold its $500 million dollar-denominated bond and assured that its proceeds would enable it to finance the power sector. Similarly, Diamond Bank Plc issued its debut $200 million five-year Eurobond and also tapped into the equities market to raise about $300 million.
Meanwhile, Diamond Bank raised $500 million additional capital also for the growth of the Nigerian power sector, while Union Bank Plc got the approval to raise $750 million. Similarly, Access Bank Plc at its Annual General Meeting got approval of its shareholders to raise $1 billion.
Other banks that tapped into the Eurobond market to raise funds for the power sector include Fidelity Bank, Guaranty Trust Bank and First Bank.
Head, Investment Research, Afrinvest West Africa Limited, a research and business advisory firm, Mr. Ayodeji Ebo, in response to an e-mail sent by Daily Sun, stated that this is expected to weigh down significantly on the profitability of banks since Discos might find it difficult to meet their financial obligations, thereby increasing the required loan impairment charges recorded by the banks in 2015.
According to him, the reduction in electricity tariff by 50 per cent will pose serious revenue challenge to the Discos as the firms are just struggling to stay above waters on the back of the over 20 per cent devaluation of the naira since November 2014.
“Recall that the revenue of the Discos is generated in naira, hence each Disco will now require more naira to pay back its dollar denominated debt. With the total removal of the collection loss applied to all consumer categories (industrial, commercial and residential consumers), the anticipated revenue is expected to decline by approximately same proportion,” he said.
Ebo suggested that efforts should be channelled towards distribution of prepaid meters to reduce revenue leakages rather than slashing the electricity tariff.
Head, Research and Intelligence at BGL, Femi Ademola, who spoke to Daily Sun, affirmed that the slash in electricity tariff will put pressure on the income of the Discos and may also affect their capacity to meet obligations to banks, which may have prepared their expected cash flow and lent to the Discos based on the original Multi Year Tariff Order (MYTO 2.1).
He stated that the revised MYTO would affect the cash flow projections and limit the capacity to repay loans as due.
Though Ademola explained that the recently introduced Power Sector Intervention Fund by the Federal Government through the CBN is expected to temper the effect of the altered capacity to repay loans to banks.
“Out of the about N750 billion earlier granted to Discos, some amount, estimated at about N200 billion, may not be repaid as planned, hence the CBN has introduced a refinancing facility of N213 billion to accommodate the shortfall and to give a boost to the power sector activities.”
He noted that with a term of 10 years and interest rate of 10 per cent, the facility is expected to reduce repayment pressure on the operators, prevent default and the need for provisioning by banks and to give a longer room for the power operators to generate income over time and repay at ease.
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