Ifeanyi Ubah’s Capital Oil and AMCON: Renegotiate and Restructure Debt

Oil business be it distribution, trading or exploration is capital intensive that requires enhanced technical know-how and optimal efficiency in management.  Without tactical and strategic planning and implementation, it becomes quite easy to go into debts. The problem of debts that was accumulated by Ifeanyi Ubah and its Capital Oil is an indicative of a management lapses that can be corrected when the parties involved sit down, sort things out and work together.  With company’s reform, pragmatic orientation and sound management the financial climate will improve. But before that debt re-negotiation and restructure are the ways forward for Capital Oil and Asset Management Corporation (AMCON).

It has been in the news for a while the struggle between CEO of Capital Oil, Ifeanyi Ubah and Nigeria’s Asset Management Corporation (AMCON) as it endeavored to forcefully squeeze out its debt from Capital Oil. The Asset Management Corporation (AMCON) was setup by Nigerian government to buy back bad loans from the previously collapsed banks and to rejuvenate struggling banks with infusion of new capital. AMCON was also empowered with the responsibility of getting those defaulted companies that took out the loans from the insolvent banks to pay back their debts.

The problem here is that as AMCON moves in one direction, Capital oil was moving in the opposite direction. With its clout the government run entity has flexed its muscle andi Ubah has been temporarily arrested and was later released.  But that has not produced the money that Ubah’s indebted Capital Oil Company owned. Therefore it is appearing that AMCON effort is not yielding any reasonable and tangible results. Therefore AMCON should be open to a brand new and credible alternative.

AMCON would have embarked on peaceful resolution with Capital Oil instead of restoring to bullying tactics and public humiliation. After all, Capital Oil is not the only company that has outstanding debts with the banks. AMCON  could have  achieve more by leveraging the instrumentality of its financial capacity and capability to negotiate with Capital Oil by sitting down with  Ubah’s Capital Oil and devise ways to settle the debt. The stipulated option would have ally and orient their perspectives and bring into sink of a common purpose and affirmative result.

It was reported in the news that an Abuja Federal High Court has ruled for AMCON to withdraw from the occupation of Capital Oil facility but AMCON declined, preferably waiting on Federal Appeal Court to give its own ruling. According to Managing Director and Chief Executive Officer of the Asset Management Corporation of Nigeria, Mr. Mustafa Chike-obi:

"The judge made a surprising ruling which we have either appealed or we are going to appeal. He basically said we should go and talk to the guy (Ifeanyi Uba) and we have been talking to him for two years. He owes us for two years - N53 billion and interest has accumulated to N12 billion - and he hasn’t paid us a kobo and so I don’t know how much talk the judge wants us to do."

This is an enormous debt and AMCON should exercise its prerogative to get the taxpayers money back but  Ubah’s vision and prospect for Capital Oil must be respected, for he built the company and was able to guide it successfully before the problems began to manifest in the deleverage of debts. It is impossible to run a big business without accumulation of the debts but the key point is to manage the debt successfully with limited risk by  not given it the room to overrun the business entity. This implies that both parties should set out for productive talks that will be supervised by the court. Occupying the company facility and premise will not bring out the money in question but a comprehensive and fundamental negotiation rooted on court proceeding and backing can be more productive.

The poor climate of debt management in Nigeria’s economy is not peculiar to Capital Oil but has permeated the country’s economic and financial landscape. Even the government of Nigeria was having a problem in managing its debts until Dr. Ngozi Okonjo-Iweala stepped in and reorganizes the country’s financial sheet. Therefore it is reasonable and logical to create a pathway for country’s business entities to be enlightened on how to manage their debts through the filing and utilization of bankruptcy rules and regulations. The rules of debt management for companies have not be fully elucidated, elaborated and appreciated by ministries of Justice and Finance. The Nigerian government has not been a capable hand in the protection of public shareholders a when such problems of debt, liquidity and bankruptcy arises.

The closing down and locking the gates of Capital Oil will not do the trick for AMCON.  To continue with that is a illogical decision without any positive ramification. When door is closed that means that regular people that worked for Capital Oil will lose their jobs. And with the problem of high unemployment in Nigeria, the last thing government can do is to encourage and contribute to the status quo.

The key here is not to allow companies and business executives not to pay back their loans but to find ways by fabricating pathways that will enable such companies to restructure its assets by going through bankruptcy rules and regulations.  Take America for example, when companies become highly indebted they can file for bankruptcy which is called “Bankruptcy Chapter 13’:

“Chapter 13 of the United States Bankruptcy Code, codified under Title 11 of the United States Code, governs a form of bankruptcy in the United States that allows individuals to undergo a financial reorganization supervised by a federal bankruptcy court. The goal of Chapter 13 is to enable income-receiving debtors debtor rehabilitation provided they fulfill a court-approved plan. This is in contrast to the goals of Chapter 7, which offers immediate and complete relief of many oppressive debts. It is a form of debt consolidation.”(Wikipedia)

Even AMCON is having problem with its balance sheet, Bloomberg news reported that: The Asset Management Corp. of Nigeria, set up by the West African nation to buy bad debts from banks, said it spent 5.6 trillion naira ($35.5 billion) in last year to acquire non-performing loans. Amcon, as the company is known, bought loans worth 4 trillion naira “with the acquisition costs at more than twice the initial estimates” accounting for the remaining expenditure, Chief Executive OfficerMustafa Chike-Obi told reporters today in Lagos, the commercial capital. It made a net loss of 2.43 trillion naira, while total assets amounted to 3.34 trillion naira.” 

The point here is to come into an understanding with the parties that AMCON is working to extract the defaulted loans. It is doable by working with them legalistically and creating a strategic pathway for long term collection of the payment on the bad debts via negotiation by using the instruments of bankruptcy and other financial tools as leverage.  Even the assets of the corporation can be swapped by negotiation not by making public scene.  AMCON in this case can be allocated some shares in the corporation with time duration under the supervision of a court.  AMCON should subscribe to a more civilized and enlightened methodology of collecting debt payment rather than resort to street fight with debtors.

Emeka Chiakwelu, Principal Policy Strategist at Afripol. Africa Political & Economic Strategic Center (AFRIPOL) is foremost a public policy center whose fundamental objective is to broaden the parameters of public policy debates in Africa. To advocate, promote and encourage free enterprise, democracy, sustainable green environment, human rights, conflict resolutions, transparency and probity in Africa.