Ardova from Nigeria seeks debt and equity financing to increase clean energy

Nigerian downstream oil company Ardova plans to raise debt and equity funds as it seeks to shift its business model towards clean energy, CEO Olumide Adeosun told The Africa Report.

The company aims to complete a capital increase in the fourth quarter of 2020 or the first quarter of 2021, Adeosun said in an interview. He declined to say how much he would ask for. Ardova is considering appointing an international bank to find the debt and will seek to raise equity on its own, Adeosun said.

The proceeds will be used to develop the clean energy sector, which currently makes minimal contribution to turnover. Ardova aims for 20% of its turnover to come from clean energy by 2024. This will be divided between liquefied petroleum gas (LPG) for cooking, solar energy and converting waste to energy.

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The COVID-19 pandemic has given Ardova’s plans new urgency. The blockages have shown that “it is possible not to sell oil in this country for a month and the world goes on,” says Adeosun. Of the society aviation fuel business “collapsed” as demand collapsed.

  • The largest share of clean energy revenue will likely come from LPG, Adeosun notes, adding that clean cooking fuel is an area where the demand curve is unaffected by the recession. “This is an area of ​​interest for the government and for us.
  • Ardova is also in talks with potential partners in solar and converting waste to energy.
  • Adeosun expects the share of clean energy to continue increasing its share of the company’s revenue beyond 2024, driven by strong demand for electric motorcycles and bikes.

Solar grid access

Nigerian billionaire Femi Otedola sold his 75% stake in Forte Oil to local oil trader Prudent Energy in 2019. The company, which trades on the Nigerian stock market, was later renamed Ardova Plc in January.

The company’s diversification strategy was in place before COVID-19, and the pandemic has not triggered any need for fundraising, Adeosun says. “The logic has always been to diversify. We know how to distribute the fuels, ”and that knowledge can also be used for clean energy, he adds.

READ MORE Solar energy financing can boost the adoption of mobile money by Africans

Ardova is interested in the full spectrum of solar energy services such as 77% of Nigerian addressable users do not have network access, says Adeosun.

  • Even those who are connected to the network often have less than four hours of access per day, he adds.
  • This gives the company the ability to use its “pay as you go” model to sell gasoline for new products, Adeosun explains.
  • Ardova will offer solar batteries which, when charged, can provide power for a day or more.
  • Adeosun’s plan is to implement a “renewable pay as you go” model that uses a digital payment platform while remaining open to traditional payment methods.

Control costs while making the strategic shift will be a challenge.

  • A note from Meristem Securities in Lagos on June 29 said Ardova’s cost-to-sales ratio in the first quarter reached 94.64%, down from 92.80% a year earlier.
  • This compares unfavorably to competitors such as Total on 88.96% and Eterna on 92.71%, says Meristem.
  • “Cost brakes” have been put on some capital spending plans in the wake of COVID-19, Adeosun notes.

A high cost base and a poor economic outlook mean Ardova will need to find investors who have what microfinance practitioners call a “Double result”. These investors aim to make a social impact through innovations such as clean cooking and renewable energy, as well as achieve financial return.

The bottom lines

Ardova investors will have to accept that there are two outcomes that will require compromise.

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