Caverton Offshore Support Group will list on the Nigerian Stock Exchange on 20 May 2014. Ahead of that, Mr. Aderemi Makanjuola, chairman and founder of the company, spoke to a group of journalists about why he is taking the company public, the company’s growth trajectory, and the prospects of indigenous companies in the oil and gas sector under the local content regime. Excerpts:
Your company would be the first indigenous oil and gas services company to be listed on the Nigerian Stock Exchange. This is coming after Seplat’s recent listing. How important is this record to you and what are your thoughts about the future of indigenous companies in this very important sector of our economy?
We are proud of our achievements thus far and humbled to be a reference point in such a tasking sector. The year 2010 was a major milestone for us. This was when we won the single largest contract ever awarded to an indigenous company. After the euphoria, we realised that this record also thrust an enormous responsibility on us as a company.
Essentially, we felt that we were unwittingly made ambassadors for indigenous companies in the sector and that there was a need for us to demonstrate that indigenous companies with commitment and focus could achieve the same result as foreign competitors.
In our minds, it simply meant that failure was not an option. So I would say that our listing is a follow up on that burden of responsibility. Just that this time the focus isn’t only on operational excellence and adherence to standards but more about the sustainability of our growth and the institutionalisation of the company.
I think that the oil and gas sector still has tremendous growth opportunities with enough capacity to enable the emergence of other technically sound indigenous companies, and with the right economic policies the possibilities are boundless.
You mentioned that you won the single largest contract awarded to an indigenous company in 2010. What is the value of the contract and with which company?
This was with Shell and the value was $648 million. It was a contract for five years plus two. We were to buy six helicopters to do the operation but it has been increased to seven with a fixed wing to enhance production. Apart from Shell, we also have contracts with Total, Addax, COTCO (ExxonMobil) in Cameroun. These are the major ones that we are concentrating on. We also operate Lagos State government helicopters.
Why did you decide to list the company and why now?
The decision to go public was signed-off by the board of directors as far back as 2008. We felt that given the significant opportunities in the market and our positioning, the use of debt-financing to fund our growth will be limiting and so we decided to carry out global case studies on companies with similar growth trajectories.
We decided that the equity funding route will ultimately give the best return on capital. So the journey to tapping into the Nigerian equity market began with our private placement in 2008 which culminated in the imminent listing. The timing was determined by a combination of the prevailing market conditions and the company’s current growth stage.
What do you mean by that?
The company has got to that stage where it needs to access more capital in the sense that more contracts are coming in. We also need to train more people and ensure that Nigerian engineers and pilots derive greater benefits from the evolving opportunities and that instead of hiring people from abroad and taking out the money, we can help Nigerians to acquire the necessary capacities and hire them.
Most family businesses hardly want to go public. Is it that you don’t have the anxieties that others have in terms of possible take-over or losing control?
Not in the slightest. When the company was founded there was a clear vision to establish a legacy business and that has always been the focus. In addition to this we operate in a very niche space within the oil and gas sector which requires a distinctive set of skills in the day-to-day management of such operations. So we pride ourselves as possessing these unique management skills and if a takeover were in the offing, I am pretty certain that the progenitors of the business would still be required to sit at the table.
So to answer your question, we have no anxieties about any possible takeover. And I say that with the greatest sense of humility. Moreover, going public does two things: it enables you to inject fresh blood into your company and it forces you to observe good corporate governance practices.
That was why we engaged the services of KPMG to marshal out various aspects of the regulations and rules that will control the company and also put in place a proper corporate governance structure. Also, going public will enable members of the investing public who want to be part of the company to invest and benefit from the growth opportunities and dividends provided by local content policies. It’s more of value added.
You said from the start you had a vision of establishing a legacy business. How do you mean?
Yes in the sense that most family-owned businesses mostly die with the founder or flounder after the death of the founder. My intention has always been to ensure that this company proves two things: one, that Nigerians can establish companies that will propagate proper corporate governance; and two, that Nigerians can establish companies that will outlive them. So my concern has always been if companies in other places can be in existence for hundreds of years, why not Caverton?
You started out as a banker and you decided to go into a totally different arena. Why did you choose to do that and how did you overcome the initial challenges of being in a different field?
After decades in the banking sector, as with most things, there was a yearning for change. The type of services within the oil and gas sector was a specific area of interest for me. I had a first-hand experience about the dearth of operators’ assets in the service sector and felt that the opportunity that existed could allow for a longer-term business and so the journey began.
As with most start-ups, the greatest challenge is proving that you have the competence and capability to sustain the business. In addition, I had chosen a capital-intensive line of service and so funding the capital expenses was going to be a challenge.
But with a lot of determination armed with decades of banking experience I was able to present the business in such a way that the projected cash flows and the growth feasibility were able to convince leasing companies, technical partners and the banks to commit resources and funds to bring things to fruition.
Many people heard about Caverton for the first time when Caverton Helicopters launched the intra-city shuttle in Lagos. Over time the two major companies in the Caverton group have grown tremendously. So what would you call the major milestones and critical success factors of the group?
Unknown to many people, Caverton started out as a Caverton Marine in 1998 operating a fleet of LPG and petroleum tankers as well as supplying equipment to the Nigerian Ports Authority. In 2002, Caverton Helicopters was born and we commenced the intra-city shuttle in 2004.
I will say that the major milestones and the critical success factors for the group will be inextricably linked to our commitment to safety and the frequent audits that keep us on our toes. In 2009, we passed the Shell audit which allowed us to qualify technically to tender for contracts and this opened the floodgate of opportunities.
This was essentially because the Shell audit is considered one of the most tasking in the oil industry. As such, passing it was a vote of confidence that brought Caverton into reckoning with our peers and other prospective clients.
Moreover, Caverton Marine, had been awarded contracts from Shell UK (STASCO) and our vessels MT Ashabi and MT Lolade were engaged in their petroleum transportation activities in West Africa. So they were familiar with our ethos on safety and professionalism. They were only surprised we were branching into other aspects which they found refreshing.
The two subsidiaries of Caverton were set-up before the passage of the Cabotage Act and the Local Content Act. How did you set yourself up to be able to compete in a sector that was dominated by foreign firms?
The enabling laws you mentioned are protectionist in nature and this type of laws is not unique to Nigeria. There is the Jones Act in the US, which is very similar to our cabotage law and the Gulf Cooperation Council countries in the Middle East also have similar laws to our local content law.
While these laws have created the enabling environments for the emergence of indigenous companies, core competence is still a basic requirement by the clients. As such, competing in the sector for us as a company is essentially holding ourselves to a higher standard than our competitors in everything we do. This cuts across, from the conditions of service, training standards, aircraft comfort to investment in facilities that would complement our overall service offerings.
How have these protectionist laws helped the company and how have you positioned yourself to be able to take advantage of the opportunities that they provide?
Whilst these laws are there to “protect”, promote and encourage indigenous investment it is not a free pass to walk in and win any contract because you are a Nigerian company. Yes the laws and policy have helped and in a big way because when you bid for any contract one of the conditions is that your company must meet all local content requirements.
However this doesn’t stop on being Nigerian alone. As a company you must show capacity to train Nigerians and invest in Nigerian infrastructure. Plus the obvious ability to show technical competence which we have shown time and time again.
Caverton is seen as a success story of and as a champion for the local content. What are you doing as an organisation to deepen local capacity in the country?
We take pride in our achievements in terms of developing and training young Nigerian professionals. We have had over 50 Nigerian seafarers operating our vessels from cadet to chief engineers, even a captain.
We currently are planning a training and recruitment programme for seafarers in conjunction with our partners RK Offshore of Singapore. This is to enable our national staff members imbibe global best practices. As at 2009 we had 160 staff members within the group. But we are now over 700 of which 603 or 86% are Nigerians.
We have trained 58 Nigerian pilots and 40 engineers. Inclusive is the initial pilots and engineering training given to fresh graduates. We have been justifiably recognised as a poster child for national content policy.
But we dare say that even though we are proudly Nigerian, safety, quality and service efficiency are the trademarks that have brought Caverton to this junction. We actively promote the development of managerial skills of our nationals.
Some have been sent to Harvard, some to other training institutions to develop their managerial skills and we are also putting them in positions of responsibilities to sharpen their leadership skills. When we started the contract with Shell, our first contract manager was a foreigner.
But one and half years down the line, we got a Nigerian, Captain Josiah Choms, who is now the contract manager and doing such a fantastic job that Shell is very pleased with him and they saying we should train more people for such positions.
Also we are doing our best to make sure that Nigerian universities and colleges are linked to us and for us to also help develop their capacity. A case in point is the Federal University of Technology, Minna, where by 20th of June we will hand over a 500-seat lecture theatre to the university.
We are also working with the National College of Aviation Training in Zaria, Kaduna State as well to ensure that when the students finish their Private Pilot License training they don’t end up being air hostess or stewards instead of being pilots.
We also have seen hindrances that are preventing us from training more people and we are looking into that to ensure that we have the facilities that can be used to train Nigerians in our country thereby saving time, increasing productivity, and saving foreign exchange for the country.
The company is going to list by introduction. Do we expect Caverton to go to the market soon to raise capital?
Yes. The listing by introduction is a precursor to our public offer which we expect should happen between the fourth quarter of 2014 and the third quarter of 2015. We decided to list by introduction because we felt it would be expedient to ensure that the market is fully familiar with the company, its past and present performance prior to its fund-raising and also to ensure that we are seen to have a proper corporate governance culture.
What do you see as the prospect of the oil and gas support services sector as a whole and where do you see Caverton in that?
As I have said, the opportunities are there. In most cases now, the big oil companies are selling up their assets and moving further offshore. So that in itself is creating opportunities for Nigerians to be able to participate. The more the opportunities for exploration, the more there will be opportunities for those of us in logistics. So we are gearing up for that. There will also be more opportunities offshore. We are targeting that as well as part of our plans for the future.
Now that you are going to list on the market, why do you think the market and the general public should be interested in Caverton?
The market and public should be interested in Caverton because of the following reasons: we are a growing company that started from humble beginnings and we have a solid track record of operational growth, income growth and dividend history; we have a track record of safety and the highest possible international standards; and our company is representative of the indigenous oil and gas local content efforts and is a poster child for local content.
Caverton is also growing operationally with a young fleet of aircraft and marine vessels in an industry that is highly technical and we strenuously observe world-class standards as recognised by our key clientele.
Importantly, being Nigerian we are also investing in the development of infrastructure and the training and creation of local jobs and manpower, contributing our own quota to the country’s GDP. Also, we believe that given the investments that are going into the offshore and deep water, we are poised to benefit significantly from this trend and we would like Nigerians to also benefit from the actualisation of our vision to become the premier offshore support services provider in Nigeria and eventually in Africa.
You just said Caverton’s vision is to become the premier offshore support services company in Africa and not just Nigeria. What accounts for this continental vision?
Caverton’s vision to transcend Nigeria’s borders was borne out of our overall strategy to diversify geographically because of the constant demands for our services across the continent. We presently have enquiries from Morocco all the way down to Mozambique and we think it makes business sense to begin to work assiduously towards the goal.
Presently we have a nine-year contract with COTCO in Cameroun which we have been operating for the past two years. We have been invited to bid in Ghana; and we have also been invited to come for discussion in Congo. Why Africa? Well, because this is the area of specific demand today. That said, we have also received enquiries from Malaysia and you never know, Africa might just be the beginning.
Apart from possible share offer, are there other things in the pipeline?
Caverton has a number of major announcements coming up in the next few months and I will rather wait for the appropriate time to make them. I will say they are all ground-breaking and one is particularly very ground-breaking as it will be a first for sub-Saharan Africa.
Only then do you start to get to market or promote the product. Yes, it has taken time but I think it’s the right thing because now more and more people know about it. As more and more people know about it, it then has a pull effect because people are saying this is something I want to do, it is in accord with my values, in accord with my faith and I trust that it is the right thing. It will grow and I think the setup process is the right ones.
Do you think enough has been done to generate awareness about the non-interest banking in Nigeria? Specifically, what is Stanbic IBTC doing in creating awareness?
We are spending a lot of time with important scholars; we are spending a lot of time with Universities; for example, the University of Katsina (the Katsina Muslim University) and the University named after the former President, Yar Adua University in Katsina, Bayero University, and Crescent University.
These are universities that we are starting to work with. We are also spending time with some of the religious institutions and other foundations to give them a sense about non-interest banking and then obviously in our branches already, we are starting to promote the product. In my travels in Bauchi, in Jos, in Kano, Katsina, Zaria, Abuja and so on, we are promoting non-interest banking and in other parts of the bank, even here in Lagos.
We are starting to create that awareness so that people understand what it is all about. What people miss a lot about Islamic banking is that there are fundamental principles and values associated with Islamic banking. If those principles and values are not there, the structures are not there, you can’t call it Islamic banking. We want to do it right and we will promote it based on Standard Bank’s own integrity ethics, because in Standard Bank we wouldn’t do something that is not ethically right or values-based. We have to get the promotion right. I am happy with the progress we have made so far.
Standard Bank, the parent company of Stanbic IBTC, launched Sharia-compliant banking in other African markets a long time ago. What has been the experience in markets like Tanzania and Ghana, and how have you applied such experience to drive uptake in Nigeria?
Our view is that each market is unique. We are trying to make sure that we use the uniqueness of Nigeria, because even within Nigeria, each region is unique; we are trying to make sure we use that.
Some of the experience we gained from Tanzania and from other markets is relevant, but we try and always bring it back to what works in Nigeria, what works in this region and use it in line with what the central bank has approved and what is in line with our board’s decision.
It is generally accepted that non-interest banking policies as well as legal and operational frameworks are well thought out and structured. Do you share this view? Are the policies adequate to spur growth of non-interest banking in Nigeria?
Absolutely! This is the actual key essence of Islamic banking. You have to make sure that the structures are in place. You must make sure that the training is being done that each product has been approved by the board and has been approved by the central bank, only then can you market it.
Those structures are in place, the products are now in place and again, we started with day-to-day products – which are transactional products. We are now getting into the learning products and as time goes on, we’ll move to more high end products. I am happy with the progress in the way we have gone up till now.
The development and issuance of Sharia-compliant products and services appear not to have kept pace with market expectations. The issuance of Islamic bonds has not attracted any traction.
I think it’s making sure we take steps all the time. The transactional products are the first we have got right. We have got that right, they are working and we are growing that base, we are now moving into the learning products. The other investment type products like bonds and things like that will come as time goes on.
Can you give us an insight into the kind of projects or the sectors of the economy that Islamic finance can help develop in Nigeria?
I think trade is fundamental. We have to use the trade environment as key. Agriculture is very important. For me, those two stand out. The more people get to know about Islamic banking, it can affect any industry, it can apply to any of the industries but the two main ones for me that are important are trade and agriculture.
The third one in a strange way is tourism, but not tourism-in, tourism-out. It’s not tourism in the sense of tourism, but it’s in relation to the faith. For instance, people who go out to do the Hajj carry a lot of cash and that is not good for them. But we are now developing the right products, debit cards that somebody can have when they are going out to Hajj. Now, these products and their potential are some of the things that for us are exciting.
Apart from inadequate awareness campaigns to market non-interest banking in Nigeria, we understand that banks offering the service are also contending with management and manpower challenges. To what extent is this true?
I can’t comment about other banks. At Stanbic IBTC, we have been fortunate to have a very good team of people in the non-interest banking team; very good support from the team where we have a dedicated specialist who the bank hired as part of our regulatory approval, who sits in our head office, who is dedicated to Islamic banking.
On the board we have got eminent scholars, and business people. We haven’t had that problem. I can’t comment about other banks but what I know is that internally, we don’t have that difficulty at all.
One of the key objectives in launching non-interest banking in Nigeria is to enhance financial inclusion in a country where about 70 per cent of the population lack access to regular banking services and also to diversify the economy by developing alternative financial services. Has non-interest banking helped in any way to bridge the gap?
It has in the sense that there are people who hitherto were unbanked because they didn’t feel that conventional banking is there for them. Those people are now seeing an alternative in non-interest banking.
But as you can well imagine, the gap is too huge, it’s still going to take time and the more awareness, the more people that take it and the more people that get involved, then financial inclusion will improve. I have known how it can move people into the financial environment and allow them to be part of a broader economy. That’s something that I am quite passionate about.
Is non-interest banking also for non-Muslims?
Yes, although there are term differences. If you call something Islamic banking, then yes indeed, it’s focused on people of the Islamic faith. But non-interest banking is a general term where Muslims will find it appealing because of the fact that it deals with the issue of interest, which in Islam is forbidden; because it’s not allowed to charge interest.
But there are other faiths or religions who also want non-interest banking. We are working now with Catholic churches who want to work with us on non-interest banking. In that sense, it will incorporate people from other faiths. That is why we talk more of non-interest banking, because when we say non-interest banking, then it is somebody who then says that this suits my faith, my values or my religion.
If it does, then somebody will do it. When sometimes you say Islamic banking, it then becomes a challenge. If somebody doesn’t think that he fully subscribes to Islam, then such a person will say – well, I opt out. But when you say non-interest banking, then such a person will say – I think it’s all the things that I want. Catholics are starting to also want to use our non-interest banking solutions.
Back in June 2011 the Central Bank of Nigeria (CBN) expressed the desire to make Nigeria a hub for Sharia-compliant finance in Africa, competing with Senegal, Egypt and South Africa to gain a huge chunk of the $1 trillion Islamic finance industry. More than three years after, are there signs the country is close to this goal?
No, we are not close.
There is still a lot of work to be done. And I think the most important thing for us is, let’s get Nigeria right in terms of non-interest banking and the rest will follow. Nigeria is such a significant country that it is inevitable what it will become but we have got to make sure that we’ve done everything right in order for that to happen.
Stanbic IBTC Bank is generally perceived as a conventional commercial bank. What expertise or experience does it have to offer non-interest banking which is based on principles of Islamic commercial jurisprudence?
The leadership team that looks after our non-interest banking are all highly qualified, well experienced bankers who subscribe to the values and principles that are needed in Non-Interest Banking. The board that we have is also made up of eminent members.
What we follow is also regulated by the central bank and the products we serve are also the products that are approved by the central bank. That is what is important. It is not necessary to setup a separate bank, it is not necessary to setup a separate business for this, as long as that part of the bank that deals with this is well regulated, well managed and approved by the central bank and supported by communities, then we are succeeding.
The conference we are having in Kano with other eminent scholars and other banks from all over the world is starting to get access to that community; more and more people will know Standard Bank as a bank that is there for all Nigerians.
Islamic finance is the fastest growing market in ethical finance with an annual average growth of between 10 and 20 per cent. According to one account, current global Islamic finance assets stand at $800 billion and are expected to hit $1.4 trillion by 2015. How would this projection shape the global financial industry as a whole, and Nigeria in particular?
In the next few years, you will see a huge growth in this environment. The scholars that are meeting in Kano come from different parts of the world – Turkey, Middle East, Malaysia, Indonesia, and so on. And some of them already have very well developed banks that are taking this to the next level, so that the more the growth, the more financial order it will change and I think for Nigeria as well; the fact that it is only three banks that have been approved by the central bank indicate that this is going to grow.
Despite being rated the fastest growing market in ethical finance and with the potential to transform economies, Nigerian banks have largely shunned the non-interest banking platform. Does that suggest that it is not profitable?
Not at all, four banks including one micro finance bank are having the license within the first two years of the new guidelines. Other financial institutions are showing interest.
Every business has its own gestation period for profitability, ways of assessing the future potentials and opportunities. For us we believe that non-interest banking has a very bright future and Profitability potentials in Nigeria. We are providing end to end financial products and services and are complementing our offerings with non-interest banking products and services not only for the potential profitability but also to increase the options and financial inclusion.
The northern Nigerian economy is dominated by agriculture with small farm holders being in the majority. In what ways can non-interest banking and Islamic finance empower the individual and small businesses, especially the small scale farmers?
Actually, this is one of the areas where I think it can be best placed to deal with how a farmer deals with his crops, to deal with how a farmer finances his business, how he manages his products and so on. There are specific products that are dealing with that, there are specific products that will allow a farmer access to financing for any stage of the production cycle before sending products to market.
Lastly, where do you see Stanbic IBTC Bank’s non-interest banking portfolio, say in five years from now?
I think it would have grown from strength to strength. There will be huge take-up in the northern part in particular, and also in the South-West. There is a huge growth prospect we will see there, and I think that also in Lagos where people will feel it’s inevitable for them. I see a huge prospect in all businesses enabled in the bank.