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Ardova Nigeria Plc which has been struggling for positive earnings since the second quarter of 2022 capitulated to operating headwinds in the downstream oil and gas space, raising concerns about the company’s ability to turn the tide.
Perhaps more worrisome is that the company is beleaguered by huge debt, which makes it a higher risk to lenders and investors because it suggests that the company is financing a significant amount of its potential growth through borrowing.
Ardova’s total debt of N46.04 billion as at December 2022 is 4.92 times total equity of N9.27 billion, according to data from the financial statement.
Additionally, debt to equity ratio increased to 496.51 percent in December 2022 from 304.90 percent the previous year, according to MoneyCentral calculations.
In November 2021, the company issued N25.3 billion unsecured corporate bond in two tranches; Tranches A & B.
Tranche A was N11.44b for a 7-year tenor at a coupon of 13.3% with an effective interest rate of 13.55% while Tranche was N13.86 billion for a 10-year tenor at a coupon rate of 13.65%.
The bond was taken to majorly finance the company’s retails outlet expansion strategy, upgrade of existing infrastructures, and other working capital requirements.
An operating loss of N2.49 billion means the company does not have the capacity to service interest on debt.
The company’s cost of sales ratio stood at 94.15 percent, as cost is rising at the same pace as revenue while inflationary pressures leaves operators in the downstream oil and gas industry with a very thin industry net margins.
Of course, sector players who are operating in tough and unpredictable macroeconomic environments are not making money as they used to.
This stems from the fact that a severe currency crisis hinders them from importing petroleum products, which makes the Nigerian National Petroleum Product (NNPCL) the sole importer of the product.
Analysts say total deregulation and liberalization of the sector that will make the market determine price at which to sell will unlock the potential in the industry and magnify the earnings of sector players.
Ardova Plc said it would delist from the Nigerian Exchange Limited (NGX) if a planned takeover bid by Ignite Investments & Commodities Limited is successful.
A few years ago, 11 Plc (former Mobil), downstream oil and gas giant, delisted from the Nigerian Stock Exchange after 43 years on the bourse.