Julius Berger Eyes Oil, Power Deals to Curb Nigeria Risk

LAGOS (Capita Markets in Africa) – Julius Berger Nigeria Plc, the largest construction company by market value in the West African nation, plans to acquire oil assets and expand into the power industry as it seeks to diversify its business and stay competitive after the country’s worst economic slump in decades.

The Abuja-based company, which derives two-thirds of its earnings from government contracts, is also considering bidding for business in other countries in the region, such as Ghana, Benin and Ivory Coast, where it has conducted market studies, Managing Director Wolfgang Goetsch said Tuesday in an interview in the Nigerian capital.

“Within Nigeria, we aim to diversify our business beyond our core competence of civil engineering, looking into power and oil and gas or to diversify outside the country but only in our core business,” he said. “We believe with strategic partners that we are more attractive to clients who want to have a whole industrial or power plant.”

Julius Berger, operating in Africa’s most populous country since 1965, saw its earnings slide as Nigeria fell into its worst economic slump in a quarter century amid lower oil prices and a shortage of foreign exchange. Julius Berger was “really hurt” as it struggled to raise funds from the parallel, or street markets, to meet its foreign-exchange obligations and was forced to restructure and cut costs, Goetsch said.

“This was very difficult, it still is. It was a struggle to survive,” he said. “It is now much better, if you look at the statistics. The gap between the central bank rate and the parallel market window is much smaller now and availability is much better.”

Julius Berger’s 2016 full-year profit of 3 billion naira ($9.2 million) is more than 60 percent lower than the annual net income it earned in the three years before the economy suffered contraction in 2015. The stock fell less than 1 percent to close at 43.70 naira in Wednesday’s trading in Lagos. It has gained 13 percent this year compared with the 25 percent surge of the Nigerian Stock Exchange Main-Board Index.

The company on June 19 said it had formed a partnership with Petralon Energy to work on oil fields in the southern, oil-rich Niger River delta. It is currently in talks with about eight power-industry investors to build generating plants, Goetsch said without providing details because the negotiations are still confidential.

Negotiations for new projects are now mostly about agreements on the foreign-currency component of the contracts, Goetsch said. “Eighty percent of the negotiation is just to find an agreement on the currency, which in the past was a minor issue and one of the last points. Now it’s always the first point because this is a risk that really can kill a company.”

Some Stability
The move by the Central Bank of Nigeria to ease currency controls and open a market-determined trading window, has brought some stability to the foreign-exchange market, even if temporary and likely unsustainable in the long term, he said.

“I don’t think that this can be the permanent solution,” Goetsch said. “Maybe it’s just a bridging solution because at the end, I think there is one dollar and one naira and there must be one rate.”