Afrioil International, a petroleum import and export firm, plans to list on the Nairobi bourse’s growth enterprise market segment (GEMS) early next year. The company, which has been in operation for about two years now says it plans to tap into the stock market to expand its business.
The size of balance sheet for AfriOil —the total of assets or liabilities – stands at Sh500 million. Dennis Makori, the firm’s Chief Executive Officer says part of this funding is from lenders. “We plan to list this company in the GEMS segment next year,” said Makori (pictured). The firm’s appetite to list follows introduction of a trading board on the Nairobi Securities Exchange (NSE) for small and medium enterprises ( SMEs) opening new funding opportunities for the growing pool of small and medium sized businesses.
Small businesses not only find it difficult to access finance, but also have to deal with the higher cost of finance relative to the charges larger firms face. Mr Makori admits that oil marketing is a highly capital intensive business and their entry has not been rosy. “For you to grow you need a lot of capital, and we believe if we tap into the stock market we can get the resources so that in the next few years we can catch up with the big boys in oil business,” Makori explained.
Some of the critical market entry barriers of oil marketing companies include the high initial investment capital requirement, which is made worse by the high cost of credit in the domestic financial market. For instance, all oil marketing firms must contribute a million litres of oil to the pipeline, which cannot be sold.
“When you join Kenya Pipeline there is something called line-fill, which is basically debt stock. The pipeline at any given time is full of products, this is because there are minimum stocks that cannot be pulled out,” he told Weekend Business. “So each time a new firm enters the oil business, has to contribute to the line-fill. And this is a million litres. That’s a contribution you make, which you can’t use until you exit the business.”
For instance, when Afrioil International, which currently has presence in Kenya, Uganda, Tanzania and Rwanda, entered the business in April 2013, the products were going for about Sh100 a litre. That’s a cool Sh100 million.
The oil firm’s main clientele are the independent oil retailers. “We realized that independent retailers were mistreated by big oil marketing companies. We saw an opportunity here,” Makori said. “For instance, when large oil marketing firms import their products they only sell to independent retailers after their own service stations have been supplied.”
From about a half a million litres when it started, the firm now handles three million litres a month. Mr Makori also runs a multi-million company—Onfon Media ltd, a value added telecommunications services provider, which he started in 2007.
