Nigeria Deals Seen by Year-End as Equity Valuations Decline

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Nigerian companies are turning into foreign acquisition targets as valuations slide with the price of oil, according to a law firm that advised on one of the country’s biggest Eurobond sales last year.

Investors from China to South Africa are interested in Nigerian industries including agriculture and mining because “prices are favorable” in Africa’s largest crude producer and the government will probably seek to diversify away from oil, Baker & McKenzie analysts led by Chris Hogan said in a Jan. 29 interview in Lagos, Nigeria’s commercial capital.

“As valuations of companies fall, they become targets for investments, acquisition or takeover by foreign players and large local companies,” said Hogan, who is a partner at the London-based firm. Baker & McKenzie advised on First Bank of Nigeria’s $450 million Eurobond issuance last year and mobile-phone company MTN Nigeria’s $3 billion financing in 2013, according to Hogan.

Nigerian company valuations are falling as Africa’s biggest economy struggles to cope with a more than 50 percent drop in the price of oil since June, reducing income. The Nigerian Stock Exchange All Share Index is down 13 percent this year, the second most among 93 primary global indexes tracked by Bloomberg.

Diamond Bank Plc is the country’s biggest loser this year, retreating 35 percent. Dangote Flour Mills Nigeria Plc is second with a 34 percent slide, while Guinness Nigeria Plc, a unit of London-based drinks company Diageo Plc, has declined 23 percent.

Seeking Partnerships

Baker & McKenzie has held talks with Chinese investors about equity-partnership opportunities with Nigerian companies operating in power, ports and transport, analyst Frances Okosi said in the same interview, without giving details. The firm has also received interest from South African companies “looking to expand in manufacturing, fast-moving consumer goods and real estate” when the Nigerian economy begins to stabilize, according to Hogan.

The naira has slumped 12 percent against the dollar on the interbank market in the past three months, the biggest fall among 24 African currencies tracked by Bloomberg. It weakened 0.3 percent to 189.95 per dollar as of 1.40 p.m. in Lagos.

“Depending on how long the naira remains depressed and how long it takes the oil price to settle, they could lead to mergers and acquisitions in banks over the medium term,” Baker & McKenzie Senior Counsel Donald Guiney said in the interview. Small banks struggling with financing “will explore chances to merge or be taken over,” he said.

‘Huge Potential’

Investors see Nigeria as a long-term prospect and are looking beyond the downturn in oil price, according to Hogan.

“The country has huge potential in terms of untapped natural resources,” he said. “It has a huge population with a lot of young people.”

Nigeria’s economy is expected to grow by 5.5 percent this year, compared with 6.2 percent in 2014, due to the oil price decline, the nation’s statistics agency said Jan 30. Gross domestic product is forecast to expand 5.8 percent in 2016 and 2017, it said.