Home Companies&Markets Market Comment: Why Dangote refinery may rebuff NNPC’s overture for a stake

Market Comment: Why Dangote refinery may rebuff NNPC’s overture for a stake


SAT 05 JUNE, 2021-theGBJournal- The Nigerian National Petroleum Corporation (NNPC) recently announced its intention to obtain a 20.0% stake in the Dangote refinery.

According to the Group’s spokesman, Dr Kennie Obateru, the development was in line with the Federal Government’s policy which stipulates the mandatory participation of the Corporation in any privately-owned refinery that exceeds 50,000 barrels per day.

Thus, Dangote refinery is amongst the six refinery projects that the Corporation seeks to obtain a stake in.

We understand that the NNPC’s intention to buy a stake in the Dangote refinery is to use the deal to secure a collaboration to be the supplier of crude to the refinery once it finally comes on board.

Accordingly, we think the preceding is borne out of the growing concern about less use for hydrocarbons with companies announcing their transition to clean energy.

Consequently, we expect Dangote refinery to object to the decision as it is advantageous to buy from any supplier rather than a sole supplier, which could be undependable.

Meanwhile, according to the Central Bank of Nigeria (CBN), credit to the private sector (CPS) increased by 10.1% y/y in April to NGN31.82 trillion (March: +10.6% y/y) – the slowest rise since July 2019 (+9.1% y/y).

We believe the preceding stems from the country’s weak macro fundamentals, which has caused banks to slow down risk asset creation despite the CBN’s 65.0% Loan-to-Funding ratio policy.

Besides that, we also think that higher yields in the fixed income market provide little incentive for the banks to rapidly extend loans to the private sector, given the risk that comes with it. On a month-on-month basis, CPS grew slowly by 1.2% (vs March: +3.1% m/m).

As the economic recovery gains momentum over the coming months, we expect CPS to increase. However, a persistent rate increase in the fixed income and interbank markets could moderate the growth in CPS given their less risky nature amidst lenders’ reluctance to increase risk in their loan books-With Cordros Research

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