By Ikechukwu Samuel
Managing Partner of Frontier Alpha LLP, Ebipere Clark, has described Geregu Power Plc’s failure to meet its bond obligation as a significant warning signal, saying the development raises questions about the financial position of the power-generation company.
Clark made the assessment while discussing Geregu’s reported default on its ₦40 billion bond, noting that the development represents the first corporate default in seven years and the first in Nigeria’s power sector, according to his remarks in the interview.
“Once an issuer defaults, and I think this is the first corporate default in seven years, but the first corporate default in the power sector, it doesn’t look good for the issuer.”
He said the default was particularly concerning because it occurred less than a year after a change in management, although he cautioned against speculating on a direct connection between the management change and the missed payment.
Clark said Geregu’s ongoing turnaround maintenance could partly explain its decline in revenue, but argued that this alone did not adequately explain the company’s inability to meet its bond obligation.
“Regardless, there should have been some due diligence at the takeover to understand the obligations that Geregu had, especially with regards to this bond.”
He estimated the interest payment due on the ₦40 billion bond at about ₦2.9 billion, based on a 14.5 per cent coupon rate, describing the amount as relatively small compared with the size of the bond.
“So they should have paid about ₦2.9 billion, I think, if the total issuance was ₦40 billion. It is a relatively small amount.”
Clark said the more significant concern was the sharp decline in Geregu’s revenue and profitability, which he said deserved closer examination.
He attributed part of the revenue decline to Geregu’s status as a thermal power generator, noting that about two-thirds of the monthly bill of a gas-fired thermal generating company relates to gas costs. However, he maintained that this could not fully explain the company’s financial deterioration.
The Frontier Alpha partner also questioned the assumptions behind Geregu’s earlier bond issuance, particularly given the liquidity challenges affecting Nigeria’s electricity market and the fact that generation companies typically receive only a fraction of their invoices from the Nigerian Bulk Electricity Trading Plc (NBET).
“It’s very hard for me to understand how in 2022 there was confidence that, should the CBN have stopped paying Geregu, Geregu would have got its money to pay the bondholders from market revenues.”
Despite the concerns, Clark said Geregu could recover, particularly because of the Federal Government’s ongoing repayment of historic debts owed within the power sector.
“I would imagine that Geregu should be able to come back from this.”
He added that the company’s changing ownership and the possible existence of a parental company guarantee could also be relevant to understanding the circumstances surrounding the default.
