The Nigerian Content Development and Monitoring Board and the Bank of Industry have rolled out a $100m equity fund to provide long-term financing to indigenous oil and gas service companies and boost local participation in the sector.
The development was disclosed in a statement signed on Sunday by the General Manager, Corporate Communications Division, NCDMB, Obinna Ezeobi.
The Nigerian Content Equity Fund, which is being provided by the NCDMB and managed by the BOI, has an obligor limit of $5m and is designed to provide financing to eligible businesses in exchange for equity rather than through traditional debt instruments.
The NCDMB and BOI inaugurated the Investment Committee of the Nigerian Content Equity Fund on Friday in Lagos, with the NCDMB Executive Secretary, Felix Ogbe, inaugurating the committee.
According to the statement, the fund is aimed at reducing the per-unit cost of oil and gas products and services locally, creating an additional source of income for the NCDMB, and attracting other investors and lenders to financially viable companies.
“By providing access to equity financing, the NCEF will enable service companies to expand and increase their market share, which will contribute to the growth of the Nigerian oil and gas industry,” the product paper stated.
The beneficiaries of the fund include oilfield service companies, manufacturers connected to the oil and gas sector, fabrication yards, and other related businesses. The maximum amount any beneficiary can apply for is $5m.
The NCDMB said the fund could potentially create about 12,500 direct jobs and 7,000 indirect jobs through its impact on oil and gas projects.
The NCEF is being implemented under the Nigerian Content Intervention Fund, a flagship intervention established under Section 104 of the Nigerian Oil and Gas Industry Content Development Act to bridge financing gaps confronting indigenous oil industry firms.
The statement noted that five NCI Fund products managed by the BOI and two products managed by the Nigerian Export-Import Bank had provided debt financing to qualified service companies over the past decade.
The existing loans have five-year tenures and interest rates of eight per cent, while the new equity fund introduces a different financing structure for businesses that may struggle to access conventional debt.
Speaking at the inauguration, Ogbe charged the investment committee to conduct rigorous due diligence on companies seeking support and ensure that the objectives of the fund were achieved.
He stressed that the equity fund was not a grant and that beneficiaries were expected to deploy the capital judiciously and repay it in accordance with the terms of the investment.
“Our top priority should be identifying people who will use the fund properly and, most importantly, return our funds back to us so that we can continue the programme for other deserving beneficiaries,” he said.
Ogbe urged the committee to ensure that only credible people with viable businesses benefited from the scheme.
The Managing Director of the BOI, Olasupo Olusi, described the inauguration as a major milestone in the implementation of the NCI Fund Equity Fund and said it represented the next phase of the longstanding collaboration between the two institutions.
He said the partnership, which has lasted for nearly a decade, began with the administration of the $350m Nigerian Content Intervention Fund, through which hundreds of indigenous oil and gas companies had accessed financing to expand their operations.
According to Olusi, the introduction of an equity financing window addresses an important gap in the industry’s financing architecture. “The next step, which I am very impressed with and very thankful to the NCDMB for thinking through with BOI, is the need to fill the finance gap with equity,” he said.
He added, “We believe that this fund will help fertilise additional resources and move the industry forward.”
The Group Head, Equity Investments at the BOI, Chike Chukwuelu, said the Equity Fund addressed what industry experts described as the “missing middle.”
He explained that many indigenous businesses struggled to secure senior debt because they lacked the collateral demanded by commercial lenders despite having viable businesses with strong growth prospects.
Chukwuelu said the equity structure would enable the fund managers to maintain closer oversight of beneficiary companies and help strengthen their governance and operations.
“What this also does is that we will now have more oversight in these companies because of the instrument that we’re using, and we can help them develop into sustainable companies, which is what the fund is targeted at,” he stated.
The Senior Technical Adviser to the Executive Secretary, Austin Uzoka, said the Equity Fund represented an opportunity to accomplish what previous financing interventions had not fully achieved. “The striking thing is that the fund is about doing things the other funds have not been able to accomplish,” he added.
He said the committee’s responsibilities included providing strategic oversight for the Equity Fund, ensuring prudent investment decisions, and building a portfolio of companies capable of growing into major industry players.