Oando Plc, one of Africa’s leading indigenous energy provider’s has seen its finance costs become elevated due to the central bank’s rate-hike campaign amid a weak profit margin.
And perhaps more worrisome is that profit has not kept up to prevent a squeeze on finances.
For the year ended December 2024, Oando’s interest coverage ratio stood at 1.26, which is lower than the 1.50 benchmark.
Total debts (long and short-term) of N2.76 trillion sits on the balance-sheet, which is 237.20 percent higher than 2023’s N818.34 billion, according to data gathered by MoneyCentral.
Interest expense was up 49.11 percent to N173.68 billion.
Rising interest rates due to tightening policy of the central bank that seeks to curb inflation means companies will be paying more to service the debts in their books.
Sometimes, a protracted increase in the monetary policy rate expands the cost of debt beyond proportion to the point it exposes companies to risk when they are unable to meet their financial obligations.
The Central Bank of Nigeria, CBN, Monetary Policy Committee, MPC, has raised the interest rate by 50 basis points to 27.25 percent, the fifth hike since February 2024.
Nigeria’s annual inflation rate climbed to a near 29-year high in December, to 34.8%, compared with 34.6% in November.
Nigeria 10Y Bond Yield was 22.12 percent on Tuesday February 4, according to over-the-counter interbank yield quotes for this government bond maturity. Historically, the Nigeria 10-Year Government Bond Yield reached an all time high of 22.35 in January of 2025.
Analysts are optimistic that the recent acquisition of assets by Oando that is expected to generate reasonable cash flows or returns will provide the needed financial impetus to pay interest on debt.
Last year, the oil and gas giant acquired 100 percent of the shareholding in the Nigerian Agip Oil Company (NAOC) from the Italian energy company, Eni, for a total consideration of US$783 million consisting of consideration for the asset and reimbursement (the “Transaction”).
Rising operating costs as well as higher finance costs have eroded profitability, leaving a meagre profit margin of 1.58 percent as at September 2024, lower than 2023’s 2.10 percent.
