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Tag: AFREXIM

  • Experts stress urgent need to unlock value in Africa’s vast arable land

    Experts stress urgent need to unlock value in Africa’s vast arable land

    Critical issues around the food and energy security plaguing Africa dominated discourse at the Food and Energy Security Conference in Lagos hosted by White & Case LLP in collaboration with the Nigeria Sovereign Investment Authority (NSIA), AFREXIM, and African Finance Corporation (AFC).

    The first-of-its-kind conference brought together industry leaders, policymakers, and experts from around the continent and beyond who noted the immense potential of Africa’s vast arable land and the urgent need to unlock its value.

    Speaking during a workshop entitled “Opportunities, Challenges, and Frictions in the Food Security Value Chain and Practical Solutions to Unlock Value”, the Chief Executive Officer of African Food Security, Alan Kessler, said the company’s key priority is to produce food locally with scale, thereby creating food security, eliminating carbon footprint, and minimizing logistics cost.

    African Food Security in a New York-based company that sees food production in Africa as one of the next biggest opportunities. The company aims to meet Africa’s food needs and contribute to the region’s economic and social progress as well as create a sustainable and inclusive business model that involves local communities.

    “Africa’s yield differential will materially change under our primary sustainable farming model, and we are combating desertification, and methane degradation, while simultaneously driving primary local food production,” Kessler said.

    “While preserving precious Rain Forest, to produce food locally with scale is the key priority, creating food security, eliminating carbon footprint, and minimizing logistics cost,” he said during the workshop co-hosted by the Managing Partner of FHSA, Vivian Maduekeh.

    The Country Manager of OCP Africa-Nigeria, Oluwatoba Clement Asana, expressed concerns that Africa possesses over 60 percent of the world’s arable land yet contributes only 10 percent to global food production.

    Speaking during a fireside chat at the conference, Asana noted that the situation underscored the urgent need for action to harness the continent’s agricultural potential.

    “As a company, if we don’t focus on agriculture, we are going to face more problems—problems that are already manifesting in some parts of Africa today,” Asana said. 

    “Once resources become scarce, competition grows, leading to instability and insecurity, even at the household/family levels. That is what we’re seeing, and agriculture must be part of the solution,” he said.

    The event featured keynote speeches from key stakeholders, including President and CEO of the African Finance Corporation (AFC), Samaila Zubairu, and CEO of NSIA, Aminu Umar-Sadiq.

    Also present at the event were notable dignitaries, such as the Chief Operating Officer and Senior Vice President for East Africa (OCP Africa), Mr Mohamed Hettiti; Managing Director of Flour Mills of Nigeria Plc, Boye Olusanya; AVP Investments at AFC, Abiola Osho; Project Lead for the Presidential Fertilizer Initiative at NSIA, Iruansi Itoandon; Partner at White & Case LLP, Melissa Butler; and Regional Chief Operating Officer of Afreximbank, Alain-Thierry Mbongue.

    Participants emphasized the need for collaborative frameworks and addressing challenges like access to financing, infrastructure gaps, and reducing food losses.

  • ‘How AFREXIM’s $3.3b crude prepayment  loan will improve forex liquidity’

    ‘How AFREXIM’s $3.3b crude prepayment  loan will improve forex liquidity’

    In late 2023, the Nigerian National Petroleum Company Limited (NNPCL) helped Nigeria secure a $3.3 billion crude oil pre-payment loan from the African Export-Import (AFREXIM) Bank. The arrangement christened “Project Gazelle” is the first of its kind to be facilitated by any government institution in the country. While many Nigerians have hailed the move, others have expressed concern about the implication of the loan for the country’s oil production. In this interview with Oluwatosin Ojo, NNPCL’s Chief Corporate Communications Officer, Femi Soneye explains issues around the loan and its benefits to the nation. Excerpts:

    Project Gazelle has thrown up a lot of issues involving forward sale of oil. What is a crude oil backed forward-sale financing agreement? How does it work?

    A forward sale financing is an agreement between the owner of a product and a potential off-taker (buyer) that allows the off-taker to pre-pay, that is, pay ahead, for the future product of the seller. Under the arrangement, the seller agrees to sell its product to a Special Purpose Vehicle (SPV) in the future in exchange for immediate funding. This done, The SPV then goes to a bank or financial institution and obtains financing based on the agreed forward sale value of the product. This financing is often collateralised by the future product itself. The advantage to the seller is that it is able to use the proceeds from the forward sale to finance its operations ranging from operational expenses to production costs, and investments in new projects.

    This seems clear enough but a key sticky issue is repayment…

    I was coming to that. It’s a simple and straightforward matter. The SPV is able to use the proceeds of the sale of the product(s) to meet its financing obligations whilst flowing back to the original seller any upsides from the final sales.

    So, what is Project Gazelle all about? What are the details of the deal with AFREXIM?

    Project Gazelle is the code name given to the structured crude oil backed forward-sale finance facility sponsored by Nigerian National Petroleum Corporation Limited (“NNPC Ltd”), which is the Seller. By this arrangement, NNPC Ltd has dedicated a specific number of barrels of crude oil to a Special Purpose Vehicle (“SPV”) which has in turn approached international financial institutions to provide the funding required to pay for the forward-sale. The proceeds of the forward-sale are thus made available to NNPC Ltd for its use.

    Why is NNPCL involved in this arrangement? What is the compelling need for it to get involved in this kind of deal?

    NNPC Ltd entered into this arrangement to ultimately provide dollar financing to the Federal Government. It is a short to mid-term solution to the foreign exchange shortage challenge currently being faced by the country. Nigeria needs to urgently improve its foreign exchange position. As of June 2023, the Central Bank had over US$6 billion of unmet obligations – forward contracts with third party institutions which were past their expiry dates.

    These unmet obligations have pressured the nation’s external reserves and resulted in a significant devaluation of the Naira. The pre-financing arrangement allows the Federal Government to receive foreign exchange, in advance, to enable it resolve its unmet FX obligations. These inflows of foreign exchange will ensure exchange rate stability and is an immediate quick-win available to the country.

    Can this type of financing really help improve flow of foreign exchange into a country?

    Forward sale contracts help resource producing companies such as the NNPC Ltd to deliver significant upfront funding for new projects prior to eventual production and export. Usually, the funding available is used as investments in existing and prospective resources, this could result in more oil and gas production in the country as new projects come on stream, and higher oil and gas exports, bringing in more dollars and foreign currencies.

    International banks have a track record for providing forward-sale financings. This basically brings new Foreign Direct Investments (“FDIs”) into the country. With Nigeria having over 35 billion barrels of proven reserves that need to be exploited and produced, a fraction of these prospective reserves can be used to raise the required funding. With a forward sale financing, the country can securitise these proven oil reserves today. This improves foreign currency inflows immediately rather than having to wait for years.

    Also, by supporting more exports and bringing in overseas financing, forward-sale financing can significantly boost the availability of foreign currency for an oil/gas dependent country. This improves the country’s ability to pay for imports and manage its overall economy. When exports finally start, the forward-sale investments are repaid using the money earned from those same exports. This improves the country’s balance of payments. The financing gives the government more stable and predictable oil earnings. This helps in planning budgets and managing foreign exchange reserves.

    But there are other ways of obtaining foreign currency…

    Yes. Nigeria can obtain foreign currency by increasing its oil production which will lead to a growth in crude exports. Unfortunately, a ramp-up in production will not occur in the short term due to the current lack of foreign direct investments into the oil and gas sector. Fortunately, as I said earlier, Nigeria is blessed with over 35 billion barrels in oil reserves and is at liberty to sell some of these reserves on a forward basis, wherein it sells only a small portion of its oil for cash forwards. Nigeria is able to source foreign exchange from other sources including Eurobonds and Debt Issuances. These sources are, however, currently constrained given the increased borrowing of recent years as a result of the poor fiscal state of the economy.

    So, why is the crude price used to determine the volume of crude pledged for the forward-sale financing lower than the current market price?

    There are a few key reasons why the crude price used for determining the volume pledged in a forward-sale financing deal is usually lower than the current market price. For one, oil prices are volatile which means prices can go up and down within a period. Using a benchmark lower price provides a safety margin during extended periods of price declines before the full repayment of the facility. To ensure a limited risk of default, Lenders want a low price for safety. Borrowers want a high price to minimise pledged volumes. The negotiated price sits in the middle. Some revenues go to cover costs before repaying the loan. A lower price estimate also makes provision for these incidental costs. In summary, lenders want safer, lower price assumptions. The negotiated price balances the interests of lenders and borrowers and reflects a prudent approach to ensuring the security of such transactions.

    What happens when sales proceeds are much higher than the repayment amount?

    If oil prices spike significantly, the future value of oil sale could become much higher than the forward-sale financing. In this case, the company (seller) simply repays the original loan amount plus interest as agreed, even if sales proceeds are higher. Any excess revenues are paid to the issuer (seller). For example, if a $100 million forward sale financing for 1 million barrels of exports at $100/barrel, but oil prices jumped to $150/barrel, those 1 million barrels would now fetch $150 million. The financiers will receive the $100 million+ interest and the excess $50 million will flow back to the seller.

    Read Also: Tinubu advocates equitable capital market access for developing countries

    Let’s look at two key areas of the Project Gazelle that have attracted a lot of comment – the interest rate and repayment…What is the interest rate on the Project Gazelle transaction?

    The interest rate is benchmarked on a three-month term Secured Overnight Financing Rate (“SOFR”) plus a margin. The Secured Overnight Financing Rate (SOFR) is a broad measure of the cost of borrowing cash overnight collateralised by treasury securities. It was adopted to replace the LIBOR rate which for decades was the appropriate benchmark for these types of international transactions.

    The current three-month SOFR rate stands 5.35%. The agreed margin on the transaction is 6.0% and there is also a liquidity premium of 0.5%, bringing the total interest rate at the start of the Facility to 11.85% However, it should be noted that the transaction is structured as a floating rate, which means that movements in the base SOFR rate will reflect in the underlying pricing of the instrument.

    In recent years, the SOFR has trended upwards due to several factors including the impact of the Covid-19 pandemic and rising inflation globally. The SOFR averaged as low as 0.04% in 2021, rising to the current levels of 5.35% as of December 2023. The SOFR rate is forecasted to trend downwards over the tenor of the facility, reducing from 5.35% to as low as 3.3% by 2028 which means the interest rate will also drop as it is benchmarked against the SOFR. On repayment, the Facility will be repaid from the future sale of oil produced by the borrower. For project Gazelle, up to 90,000 barrels has been earmarked for this purpose.

    The quantity of crude earmarked is sized to ensure that there is sufficient cash available for the repayment of the facility as and when due and ensure that the Borrower can also meet the other cashflow obligations, taking into consideration the expected future price of crude oil globally.

    Finally, how will repayments be affected by oil prices?

    Repayments are usually tied to the value of future exports. So, if oil prices rise, more money comes in from the sale of the 90,000 barrels, allowing faster repayment. But if oil prices fall, repayment may be slower. For example, if the PXF loan was $100 million to be repaid from 1 million barrels of future oil sale, repayment would vary depending on the eventual price per barrel. For example, at $150 per barrel, 1 million barrels fetches $150 million. Loan is fully repaid. At $60 per barrel, 1 million barrels fetches $60 million. Loan repayment would be lower. For Project Gazelle, the projected price used for determining the allocated crude is $65 per barrel.

  • ‘Africa suffering from currency colonisation’

    Dr. Benedict Oramah is President and Chairman of AFREXIM Board of Directors. He spoke with some journalists on the sidelines of the AFREXIM’s Annual General Meeting in Abuja, reports Ibrahim Apekhade Yusuf

    Africa has about 40 currencies, so anybody who wants to buy something from another country has to first buy US dollars and then change. And then when the dollar now gets to the exporter’s country, it’s changed again to another currency. That’s very inefficient. You cannot promote and make your trade competitive because the currency colonisation as we have described it has to some extent dollarised trade. Somebody who is in the US or who is dealing with dollars gets dollars directly so from that point of view, even the cost is less. So trade is diverted away from the continent.

    The second thing related to that is that the dollar is not a currency of any of our countries in Africa. We cannot create dollars because we have to earn dollars by our exports and most of our exports are commodities they are not dynamic businesses. Most of the countries have constraints with regards to foreign currencies. Because we have that constraint, again that limits your ability to trade with your neighbours. So what we want to do is to say okay, let’s begin by finding a way make our local currencies convertible to some extent. The way to do it is to find a system that enables people to trade and get paid for his goods from

    Way forward

    So we create a system whereby a buyer from one country pays for import in his or her local currency while the exporter get his or her local currency too. So what we are trying to do is put in place a multilateral system, where at the end there will be no need to settle in dollars at all. And you don’t have to spend all the time.

    If somebody in Kenya wants to pay somebody in Nigeria, the dollar first goes somewhere in the US and then from there, it comes back and sometimes it take a few days or it doesn’t come at all and you start searching for it. With these multiple intermediaries it takes a lot of efforts before money gets there. But with the multilateral system, it will eliminate that also. With all these, we believe trade within African countries will be done very well and profitably too because we’re going to use technology.

     

  • Buhari to AFREXIM: Support Nigeria’s agricultural programmes

    President Muhammadu Buhari on Thursday asked the African Export – Import Bank (AFREXIM) to align its lending schemes with the agricultural priorities of the present administration.

    Speaking while receiving the President of the Bank,  Dr. Okey Oramah, at the State House, Abuja, President Buhari acknowledged that Nigeria was the biggest beneficiary of AFREXIM’s loans and facilities.

    He, however, observed that despite the impressive array of lending to institutions and industries in Nigeria, agriculture didn’t feature well in the bank’s programmes and should be taken on board.

    In a statement issued by his Senior Special Assistant on Media and Publicity, Garba Shehu, the President said: “Many do not appreciate how much we are doing in agriculture.  The Minister of Agriculture and the Central Bank are doing so much.

    “We have almost achieved complete food security coupled with the massive employment of able-bodied Nigerians, both the educated and the not – so-educated.  You must take interest in our agriculture.”

    He also directed the Secretary to the Government of the Federation, Boss Mustapha, to take up the Minister of the Federal Capital Territory on the provision without delay, land for the bank’s regional headquarters and a proposed Centre for Medical Excellence in Abuja.

     

     

  • Afrexim invests $16b in Nigeria to support difficult transactions

    Afrexim invests $16b in Nigeria to support difficult transactions

    African Export-Import Bank (Afreximbank) says its has invested over $16 billion in Nigeria to supported difficult and inpactful transactions.

    In addition, the bank, disclosed that it has taken an investment decision in collaboration with the Nigerian government to deepen its investment portfolio in the country by building ultra modern healthcare hospital to be located either in Abuja or Lagos.

    This disclosure was made by Dr. Benedict Oramah, President and Chairman of the Board of Directors of AFREXIMBank at a press briefing in Abuja yesterday.

    Oramah stated that the Ultra modern multi- dollar tertiary level hospital will be a joint partnership investment between the bank, Nigeria’s Federal Ministry of Health and the Kings College Hospital (KCH), London.

    The Afreximbank president said the cost for the Hospital can’t be fixed for now because it will be a turn key project which cost will be determined after a contractor is engaged and some initial logistics addressed after discussions between parties involved.

    According to him, Nigeria remains a very important shareholder of Afreximbank and also the highest beneficiary of its funds. “We are doing this project with Kings College Hospital, London. The idea behind this project is to be able to treat complex diseases, reduce money spent on medical tourism overseas, create room for capacity building for health workers like doctors and nurses.”

  • AFREXIM invests $3.8b in Nigeria’s economy

    The African Export-Import (AFREXIM) Bank, has invested $3.8 billion in the Nigerian economy this year, its President, Dr. Benedict Oramah, has said.

    Speaking with reporters yesterday during the 2016 Nigeria Higher Education Summit in Abuja, Oramah said the bank will continue to support the country.

    Represented by the bank’s Director of Human Resources, Stephen Kuma, the president said the investments covered various sectors of the economy.

    According to him, the bank would continue to invest in African economy to help the continent develop.

    “The $3.8 billion which  which AFREXIM has invested into the Nigerian economy is essentially over the period 2016 up to the end of October and it is in different sectors, to financial institutions (in the) oil and gas sector. Not primarily education,” he said.

    He also said the bank will consider investing in Nigeria’s education sector in the future.

    Oramah, who said there was a hug financial gap in the funding of education in Africa, advised governments to find innovative solutions to bridge the gap.

    “We don’t have any investment in education at the moment but these are areas we are looking at in the future.

    “It is important for us to have balance between technical education and tertiary education. While it is useful to have people that are well educated in the arts and theories of science, it is also important to have people that are practical scientists that can actually help to build the economy.

    “It is important to look at the fact that there is a financing gap and to look at innovative solutions that can help bridge that gap including student loan schemes as well as securitising those loan schemes so that you can be able to provide funding for universities to fill that gap,” Oramah said.

  • AFREXIM mulls $1b loan

    AFREXIM mulls $1b loan

    The African Export-Import Bank (AFREXIM) is to raise over $1billion in bonds and loans in Renminbi, the Chinese currency, as trade with China rises.

    Bloomberg quoted Jean-Louis Ekra, president of the Cairo-based lender, as saying a Eurobond of between $400 million and $600 million might be sold this month.

    He spoke in Abidjan, Ivory Coast, where the bank opened its third regional office after Harare in Zimbabwe and Abuja.

    The firm will seek the loans from 35 banks later in the year, he said.

    “We want to help the regional economies grow by supporting the private sector. We plan to raise funds in the Chinese currency because of increasing trade between Africa and China,” he said.

    AFREXIM is considering borrowing in Chinese renminbi to take advantage of rising trade in Africa with China, which is the top trading partner of Africa’s five-largest economies, including South Africa, Nigeria and Angola. The lender, which started in 1993, is raising debt as borrowing costs on existing bonds drop to record lows and companies across sub-Saharan Africa issue Eurobonds to benefit from a global hunt for yield.

    Rates on AFREXIM’s $700 million of notes due July 2019 dropped 115 basis points, or 1.15 percentage points, this year to an all-time low of four percent last week.

    Companies in the world’s least-developed continent issued $2.8 billion of dollar-denominated debt in the year, the best start to a year since 2011, as investors take their search for returns further afield amid dwindling gains elsewhere. Interest in African debt is being driven partly by falling yields in other emerging markets, in turn spurred by record-low developed-nation interest rates.

  • AFREXIM mulls $1b loan

    • May borrow in Renminbi

    The African Export-Import Bank (AFREXIM) is to raise over $1billion in bonds and loans in Renminbi, the Chinese currency, as trade with China rises.

    Bloomberg quoted Jean-Louis Ekra, president of the Cairo-based lender, as saying a Eurobond of between $400 million and $600 million might be sold this month.

    He spoke in Abidjan, Ivory Coast, where the bank opened its third regional office after Harare in Zimbabwe and Abuja.

    The firm will seek the loans from 35 banks later in the year, he said.

    “We want to help the regional economies grow by supporting the private sector. We plan to raise funds in the Chinese currency because of increasing trade between Africa and China,” he said.

    AFREXIM is considering borrowing in Chinese renminbi to take advantage of rising trade in Africa with China, which is the top trading partner of Africa’s five-largest economies, including South Africa, Nigeria and Angola. The lender, which started in 1993, is raising debt as borrowing costs on existing bonds drop to record lows and companies across sub-Saharan Africa issue Eurobonds to benefit from a global hunt for yield.

    Rates on AFREXIM’s $700 million of notes due July 2019 dropped 115 basis points, or 1.15 percentage points, this year to an all-time low of four percent last week.

    Companies in the world’s least-developed continent issued $2.8 billion of dollar-denominated debt in the year, the best start to a year since 2011, as investors take their search for returns further afield amid dwindling gains elsewhere. Interest in African debt is being driven partly by falling yields in other emerging markets, in turn spurred by record-low developed-nation interest rates.