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Monday, May 29, 2023

Technically Insolvent Oando Faces Existential Liquidity Crises  

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Oando Plc is beset by a liquidity crisis which raises concerns about its ability to honor obligations to both short and long term creditors even amid benign crude oil prices since the first quarter of 2022.

MoneyCentral compared the Nigerian based energy-based solutions provider’s total liabilities, at N1.12 trillion as of December 31, 2021, to total assets of N998.05 billion, indicating the company is technically insolvent.

Over the past five years, the company has been carrying a debt load as it has not recovered from the impact of a slump in crude oil prices of mid-2014 that prevented it from making gains in the acquisition of ConocoPhillips.

In 2017, disgruntled or discontented shareholders expressed worries over the state of affairs in the entity as they accused the management and board of directors of financial misconduct and there were speculations they wanted the CEO Wale Tinubu relieved of his position.

It has a total debt (both short and long term) of N460.77 billion as at December 2021, which is higher by 9.80 percent than 2020’s N419.62 billion.

It appears that Oando might find it difficult to make interest payments on its debt as times coverage ratio stood at 1.05, according to MoneyCentral calculations.

A coverage ratio, broadly, is a measure of a company’s ability to service its debt and meet its financial obligations. The higher the coverage ratio, the easier it should be to make interest payments on its debt or pay dividends.

An interest coverage ratio of 1.5 is generally considered a minimum acceptable ratio for a company and the tipping point below which lenders will likely refuse to lend the company more money, as the company’s risk for default may be perceived as too high.

Accumulated losses of N478.65 billion in the balance sheet which is responsible for negative shareholders’ fund as well as negative net cash flow from operating activities indicate the oil giant will not be paying dividend to shareholders who have invested their money with a view to getting a return on investment.

The company’s stock price which traded at N29.29 as of December 2014 now touches down at N6.43 as of March 29, 2023.

But the oil and gas giant posted a profit after tax of N34.72 billion, from an after tax loss of N140.67 billion as it benefited from higher crude oil prices and a reversal of impairment.

Oando Plc has announced that it received an offer from its majority shareholder, Ocean and Oil Development Partners Limited to buy out all minority shareholders in the company OODP which currently holds 57.37% shareholding in the company.

Subsequently, the company plans to be taken private and would delist from both the Nigerian and Johannesburg stock exchanges.

The offer is being made at a price of N7.07 (or its equivalent in South African Rand) to all eligible minority shareholders (scheme shareholders).

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