Oando to Sell Downstream Operations to HV Investments

Proshare

Tuesday, June 30, 2015 1:12PM / FBN Capital Research   

Event: Oando to sell downstream operations to HV Investments

Implications: Upstream activities now primary driver to Oando’s growth; less exposure to low margin downstream sub-sector

Today,
OANDO announced plans to sell a controlling stake of its downstream business to HV Investments B.V., a joint venture owned by Helios Investment Partners and Vitol. According to company statements, Oando has agreed to sell 60% economic rights and 51% voting rights of the retail arm for a total consideration of US$461.3m – US$276.8m in cash and US$184.5m in Oando preference shares.

The news comes as no surprise given that rumors of an eventual sale have been making the rounds over recent months. Oando’s partial downstream business exit has long been in the pipeline, with management attempting to partially divest the business a few years ago. 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.

Although the market has shown little reaction to the announcement, we would expect a rally in the stock over coming days

Year to date, Oando shares have shed -1.3% vs the ASI’s -4.1%.

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