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It appears borrowing has not paid off for Ardova Nigeria Plc as the downstream oil and gas giant posted a net loss of N4.34 billion in the third quarter of the year, and that compounds the woes of a firm who does have enough operating income to pay up its debt.
Ardova has a debt-to-equity ratio of 377.03 percent as at September 2022- which is higher than 2021’s 304.97 percent figure-; this means that for every Naira of stockholder equity, the company has N3.77 of debt.
It has N48.13 billion of total debt in its balance sheet, and total liabilities of N127.17 billion as at September 2022.
A high debt to equity ratio (D/) could be a marker to investors that the downstream oil and gas giant’s debt outweighs its ability to generate its own capital or turn a profit.
A cursory look at the books of Ardova is beset by reeling from deteriorating financial health as it has a negative interest coverage ratio due to operating losses that cannot absorb the finance cost.
The interest coverage ratio figure is a measure of a company’s ability to repay its debts, with a ratio of at least 2 generally considered the minimum acceptable amount for a company with solid revenues. Analysts typically prefer a coverage ratio of 3 or higher.
There are concerns that the recent acquisition or business combination strategy of the firms could expose it to more financial risk.
Ardova Plc (AP) had reached an agreement to acquire a 100 per cent equity stake in Enyo Retail and Supply Limited (Enyo).
According to parent company African Petroleum (AP), by acquiring Enyo, it will become the largest downstream energy company in Nigeria, as it will add Enyo’s 95 existing stations to its existing portfolio of 450 stations nationwide, to bring the combined group to a network of 545 stations.
“On completion, this acquisition will lead to a stronger downstream energy group that benefits from the increased customer reach and service delivery excellence of both companies, with the combination expected to produce stronger financial results,” said Chief Executive Officer of AP, Olumide Adeosun.
The operators in the downstream oil and gas sector are grappling with deteriorating earnings as they are losing huge money due to the refusal of the government to completely deregulate and liberalize the sector.
Of course, this lack of investment opportunities have stifled foreign direct investment into a country that houses the poorest people on earth.
The State owned corporation NNPCL has been the sole importer of the product over the past six years as marketers cannot get foreign exchange to bring in the product.