Eko Disco To Acquire West Power and Gas Stake For $350 million Fund Raiser

Eko Disco To Acquire West Power and Gas Stake For $350 million Fund Raiser
Eko Disco To Acquire West Power and Gas Stake For $350 million Fund Raiser

The primary investor in Eko Distribution Company, West electricity and Gas Ltd., is considering selling its stock in the electricity distribution company.

The local news brand exclusively got information revealing that the company is considering a capital raise and has contacted advisers and fundraisers to expedite the sale. According to sources, the corporation wants to sell its equity for $350 million.

According to reports, WPG spent $135 million to purchase 60% of the distribution company’s key assets from the government in 2013 when the power industry was privatised. The remaining 40% of the distribution company’s equity is owned by the government.

One of the eleven distribution firms that the federal government has licenced, Eko Disco serves up to eight million people in the Lagos South franchise area.

Leading the industry in both loss reduction and remittances to the market, the power distribution firm has been one of the top performers in the industry. One of the lowest in the business, the corporation recently reported an all-time low aggregate technical commercial and collection loss of roughly 10.22% in the fourth quarter of 2023.

The company stated that it collected N177.5 billion in income and billed 3,448 GWh of energy in 2023, according to data from the National Bureau of Statistics. According to regulatory data, Eko Disco gets paid roughly 85% of its invoiced income.

What they’re saying Our sources tell us that the company is planning to sell off some of its equity as part of a recapitalization strategy in front of numerous ongoing reforms in the sector, which many think have the potential to significantly impact the industry moving forward.

A source disclosed that “They are planning to sell about 60% of the company to investors for about $350 million as part of the strategy to expand the firm and improve its liquidity.”

WPG was contacted by regional and national news outlets regarding the sale, but the company did not provide an affirmative response. But in a statement, the business said that it constantly looks into making smart investments in network upgrades to guarantee a steady supply of electricity for consumers.

The statement disclosed that “The Board and Management of WPG are continually evaluating potential investors and strategic partnerships that align with our vision for EKEDC’s long-term growth and sustainability. We are committed to pursuing initiatives that generate positive returns for our investors, EKEDC employees, and the communities it serves.”

Nonetheless, a second senior source within the organisation, who opted to remain anonymous due to not being permitted to address the media directly, attested to the fact that the organisation is actively looking for investors who share their vision for Eko Disco.

“Yes, we are looking for investors in our stake in Eko DisCo and we are currently speaking to several interested parties. Despite the challenges in the distribution end of the sector, Eko DisCo is one of the leading performers in the sector and has always met its remittance obligations.”

Possible Buyers and Investors

There is significant interest from local players, especially in the renewable energy space, who may view this as an opportunity to gain entry into a crucial value chain and expand their reach and influence in the industry, according to another source with knowledge of the deal who spoke to the local and national news brands.

The distribution franchise region of Eko DisCo is seen as ideal for players in renewable energy because of the numerous residential and commercial real estate projects that have occurred recently.

Power generation businesses (GENCOs), who see this as a chance for synergy in a value chain that is closer to customers and gives them a clear line of sight into cash collection, may also be interested. In general, GENCOs have better financial standing than DisCos.

The source emphasised the strategic alignment between the target company’s industry focus and the potential acquirers. “The likely investors are the players in GENCOs, given their substantial financial resources and profound understanding of the market,” he said.

In a comparable deal, Transcorp Power bought a 60% equity stake in one of Nigeria’s 11 energy distribution firms from the Abuja energy Distribution Company (AEDC). Other owners of less expensive hydropower-producing businesses have also gained traction in the power distribution market by taking advantage of the eligibility requirements that let generating businesses sell directly to major manufacturing maximum-demand clients. According to sources, they are reportedly actively searching the industry for possible acquisition targets.

Recent changes necessitating a capital rise Stakeholders and energy experts see the impending energy sector upheaval as a clear indication of the urgent need for more capital investment to spur growth.

An energy economist and legal expert named Ayodele Oni agrees. If the rumoured takeover comes to pass, he says, it might be advantageous for the industry. Specifically, he sees an improvement in the company’s financial performance as a possible result.

He stated, “It is important to have good corporate governance structures, more operational efficiencies and financing to function properly as a DisCo. Hence, where the sale of the interest would improve the performance and financial capacity of the DisCo, it can yield positive results for the sector.”

Ifeoma Malo, CEO of Clean Energy Technology, interprets the possible acquisition as a hint that DisCos will become more efficient. She points out that these businesses, whether they were owned by the government or the private sector, have never been run effectively in the past.

Malo makes the welcome suggestion that recapitalization to increase the DisCo’s financial capabilities could result in an extended lifespan and operating efficiency.

Continuing, she said “At every point in time, energy companies are looking for more and more investment. Most of them are recapitalized to attract more financial flows to extend their operations and lifespan. Almost every DisCo I know is looking for new investors.

“Power and electricity are the most fundamental things holding back Nigeria’s development, and I think it’s an attractive point of investment for anybody who is looking to invest in a country like Nigeria. The potential for return eventually is great.

“The only thing is that we need patient capital. It’s not an investment that you will get a yield in five or seven years. We are looking at people who can do at least ten to fifteen years. That is the kind of investment we are talking about,” she added.

However, Eko Disco is estimated to be worth $583 million, or N875 billion, at $350 million. Geregu Power and Transcorp Power, the only two listed firms on the Nigerian Exchange, are valued at N400 billion and N1 trillion, respectively, on the market.