Interview with Roger Brown, CFO of seplat

Seplat hopes that investors’ appetite for resource stocks and exposure to Nigeria’s fast growing domestic market will boost its initial public offering on the London and Lagos Stock Exchanges, says Roger Brown, CFO of Seplat.

Seplat’s joint listing on the London and Lagos Stock Exchanges in April valued the company at $1.9 billion, offering the business an injection of capital as it continues its expansion.

However, the strength of the company’s finances and its ability to raise money through private sources raise questions about why the business is now coming to market.

“I guess if you take a snapshot of our results, you could come to the conclusion that we don’t need to raise money at this point,” says Roger Brown, the company’s CFO. “It’s part of a wider overall strategy.”

Since its foundation in 2010, Seplat has experienced healthy growth, with revenues in 2013 at $875 million and profit at more than $450 million. The company has been profitable since it began reporting in 2011.

Private equity and debt financing have supported its growth to date, but, Brown says, the company always intended to list as it looks for more opportunities to make acquisitions as international oil companies divest their onshore assets, making them available for indigenous players.

“We’re an acquisitive company, and there are lots of opportunities,” Brown says.

Seplat’s growth to date has been intrinsically linked with the strategies of the international oil companies (IOCs), which have been reducing their exposure to Nigerian onshore oil assets. IOCs have, typically, concluded that they have a competitive advantage offshore, and have often struggled to manage the complex social and political environment in Nigeria.

A government-backed indigenisation programme has also encouraged the majors to sell on marginal fields that they have left unexploited.

Seplat made its first major investments in 2010, when it bought a 45 per cent participating interest in three onshore oil and gas leases in the Niger Delta, quadrupling the fields’ production. Since then, the company has bid for IOC assets; it was, in 2013, the preferred bidder for the acquisition of a 40 per cent stake in three of Chevron’s onshore blocks and was invited into the final round of an auction of a 45 per cent stake in four onshore blocks owned by Shell, Agip and Total.

Being competitive in these auctions means having access to diverse sources of capital, and having an international reputation, Brown says.

“Relying on a couple of sources of capital is not very sensible in terms of our growth strategy in Africa. Raising public equity opens up other options for us, fixed income bonds for example. You look at a spectrum of capital that we can access as a listed company.”

The strict entry and reporting requirements on the London Stock Exchange automatically lend credibility to the business, meaning that investors, sellers and potential partners can have confidence in the company.

“This is about creating credibility, creating a robust company that has access to capital quickly, and is credible in the public market. Attached to that is corporate governance. [Listing means] a higher level of corporate governance—and publicly displayed corporate governance,” Brown says. “We have broadened the board. We now have an 11-man board soon to be 12, six of which will be independent non-executive directors”

The company decided early on that it wanted Lagos to be its primary listing, with a secondary listing in London, “where the bulk of the liquidity, we believe, over time will sit.”
Seplat will be the first company to IPO on the Lagos Stock Exchange and the main board of the London Stock Exchange.

“It does come with a reporting requirement,” Brown says. “You end up with a combination of the rules of both exchanges. There are some things that Lagos reports that London doesn’t. For example, it submits quarterly results. For a company such as ours, we probably have to have a greater reporting requirement, which should be good for investors—they’re going to get a lot more information from us than they would from both exchanges.”

Several of the world’s largest resource companies are listed in London, and the exchange is also a popular venue for emerging market businesses looking to raise international capital. African and Africa-focused companies.

“In London there’s a lot of liquidity for oil and gas and resources stocks,” Brown says. There are other centres of course. London has been quite a tough venue to get onto. The regulations have been tightened up significantly on London. The hurdle is much higher for us to get onto. But we took the view that it’s a world-renowned stage for an IPO and that was important to us.”