Nigeria SWF to buy stake in gas processing plant

The Nigeria Sovereign Investment Authority (NSIA) will in a couple of weeks announce a major investment in gas processing plants with the aim of solving the problem of gas in the power sector of the economy, says Uche Orji, chief executive, NSIA, managers of the nation’s sovereign wealth fund.

“In the next three weeks, a big investment in gas processing will be announced by the NSIA,” said Orji.

Orji, who spoke in Lagos at the launch of “The Nigerian Banking Sector Report” by Afrinvest, said  that the investment would be made out of the $200million for gas to power by the federal government.

He specifically said  the investment under the gas to power project,  would be in gas process and transportation, to enable gas get to the power plants.

He said series of consultations and meetings have been

held within and outside the country, including a round table meeting, where experts in the oil and gas sector, electricity and banking sector were brought together to deliberate on modalities for the project.

The sovereign fund was set up two years ago, to safeguard oil revenues for future generations, provide a buffer against external shocks and spur infrastructure development in Nigeria.

The global economy, currently characterised by a disconnect between underlying economic growth, asset prices and high valuations, is making for a difficult investing environment, said the head of Nigeria’s sovereign wealth fund (SWF), which has assets of $1.55 billion under management.

“How do you reconcile where asset values, the global growth environment and interest rates are at all time lows?” asked Orji.

“How do you invest in such an environment, which is much more challenging as we go into the second half of the year, and do global policy makers have all the tools to manage the fallout from an unwind of stimulus?” he further asked.

The United States Treasury 10-year notes declined for a fourth day yesterday, as benchmark 10-year yields  climbed three basis points, or 0.03 percentage point, to 2.50 percent as of 8:24 a.m. in New York.

The S & P 500 has climbed 8.6 percent in 2014, as the series of Fed stimulus have led to acceleration in the U.S. economy at a period when conflict between Ukraine and Russia threatens to tip Europe back into a recession and economists forecast growth from Japan to China will slow every year through 2016.

The NIF has also paid compensation on right of way for the nearly 40 km, $700 million, second Niger Bridge, for which significant construction activities are expected to begin by the end of 2014.

The stabilisation fund is fully invested and has been outsourced to  three managers, with returns running slightly between +3 and +3.5 percent, according to Orji.

“The challenge for us for now, with regards to the stabilisation fund, is the low interest rates,” said Orji.

The fund gave UBS $50m last year to invest in US Treasuries, while a further $150m went to Credit Suisse and Goldman Sachs, to build a US corporate bond portfolio.

The FGF invests in five asset classes, of which equity makes up 25 percent of the total, with 10 percent invested in developed market equities, while the rest (15 percent) is invested in Emerging Markets (EM).

“We believe that more growth will be delivered in EM, plus they also have lower asset valuations and growth disconnect,” said Orji.

The Nigerian SWF is the third-largest in sub-Saharan Africa, after the $6.9bn of Botswana and the $5bn of Angola. However, the Nigeria Sovereign Investment Authority (NSIA) is tiny compared with those of oil producers such as Saudi Arabia, Norway and Abu Dhabi, which have more than $600bn in assets each.

For Orji, the consistency of Nigeria’s SWF and how well it is funded is key to safeguarding its future, even as current assets are 50 percent below the sweet spot of $3 billion.

“It is about discipline, and if we get it right, it will create tremendous opportunity for Nigeria and the banking sector as a whole,” Orji said.

Businessday