AMCON debt refinance deal - a plus for bond market
The Asset Management Corporation of Nigeria (AMCON), which was recently talking to debt investors on a non-deal road show in London, as it looks to float debt to refinance a N5 trillion ($31bn) debt, said Monday it would retire N2 trillion worth of its N5.7 trillion of bonds this year and next from bad loan recoveries and refinance what’s left with the Central Bank of Nigeria (CBN).
This is seen as plus for the debt markets by analysts, leading to a rise in bond prices and consequent decline in yields as a substantial volume of domestic debt stock will have been removed via this initiative.
If this is achieved, it would mean AMCON has made great progress on recovering bad loans and that after the refinancing, the central bank will be the sole holder of its bonds.
The retiring of the N2 trillion worth of bonds will cut AMCON’s liabilities by 35 percent.
AMCON will also start divesting its shares in three lenders nationalised by the central bank in the next 30 days, starting with Enterprise Bank, it said in a statement.
“AMCON already indicated that the three nationalised lenders will be taken to market once they are stable and there are suitable buyers for them over a two to three-year period from the take-over date,” Abiodun Keripe, head of research at Investment One Financial Services Limited, said in an email response to questions. “If this is coming ahead of initial target, I think it is a plus.”
AMCON sold bonds to fund the purchase of bad debt and took over three of the rescued banks after regulators deemed them unlikely to meet a re-capitalisation deadline.
AMCON is a unique institution that combines the buying of bank non-performing loans (NPLs), with the restructuring or refinancing of performing loan and the re-capitalisation of troubled financial institutions.
It was set up in 2010 as a resolution mechanism for the Nigerian banking crises.
Data from AMCON show that it spent N5.6 trillion ($35.5bn) in 2011 to acquire NPLs, giving banks more capacity to lend to the private sector.
The intervention by AMCON has helped to reduce the banking industry NPL ratios to an industry average of about 5 percent in 2012, from over 30 percent in 2010.
Banks have also resumed lending with some like UBA planning to increase loans by as much as 40 percent this year to fund oil, power and manufacturing projects.
However, there has been some suggestion of the need to have a sunset clause for the ‘bad bank.’
The International Monetary Fund (IMF) in its latest report commended Nigeria’s success in stabilising its banking sector, but recommended AMCON wind down its operations to curb “moral hazard,” whereby a party is more willing to take a risk, knowing that the potential costs of taking such a risk will be borne by others.
Mustapha Chike-Obi, AMCON CEO, said last year that AMCON’s aim was to gradually reduce its operations and cut staff in the next five years, as a full banking recovery makes it no longer needed, saying “we are not buying any more non-performing loans.
“We have cleaned up the banking system, bad loans are under 5 percent and we want to make sure that everybody adheres to the prudential guidelines.”
AMCON, which reported a one off N2.37 trillion loss for the 2011 period at the end of last year, said “it intends to repay bondholders in December 2013 with cash and liquid instruments.”
Businessday
