By , 06.27.2010ÂÂÂ
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As banks adopt various strategies to survive the post-Central Bank of Nigeria (CBN) reforms in the banking sector, some of these institutions are also preparing to embrace the option of foreign equity injection, THISDAY checks have revealed.
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While some of the rescued banks are being prepared by the CBN for possible take-over by foreign investors, investigations showed that even banks that passed the special audit jointly carried out by the CBN and Nigerian Deposit Insurance Corporation (NDIC) are already positioning for possible foreign acquisition.Competent market sources said that one of such banks is already seeking the approval of its shareholders ahead of any opportunity that may arise in that respect.
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“The issue is that the reforms have exposed a lot of weaknesses and there is a need for the banks to sit up in order to regain patronage and trust of the public. Besides, as strong indications are emerging that some of the rescued banks are likely to be bought over and become stronger; other banks are not resting on their oars. They are also looking ahead and one of the strategies is to form alliances that will begin with foreign financial institutions injecting funds that could be converted to equity at a later date,†a source said.
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One of such companies, which is planning to hold its Annual General Meeting next month, is already asking the shareholders to give the directors the authority to accept, from leading development financial institutions and/or offshore correspondence banks lending from time to time, an investment in equity and/or convertible debt upon terms to be agreed.However, the bank is said to have put a peg that the debt, if eventually converted, must not result in the increased issued capital of not more than 575 million units of its ordinary shares.
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Financial analysts have said that the development portrays dearth of liquidity in the Nigerian financial system – which is a fall out of the CBN’s reforms.THISDAY had recently reported that following the refusal of banks to resume full lending activities, some companies were now eyeing foreign capital to survive.One of the instruments through which the companies intend to raise the funds is Bond with Options.
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The Managing Director of  Goldbanc Management Associates (GMA) Limited, Mr Abayomi Sanya, who had in past raised funds for firms through the channel, had confirmed this development.Sanya said: “I can confirm to you that some companies are looking outside for funding given the tight liquidity in our local market. While some are using other  instruments, GMA is currently working on some proposals from companies that want to  use the Bond with Options,†he said.
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Sanya explained that Bond with Options is a hybrid instrument that combines debt and equity, comprising two instruments namely bond and options. “The option is detachable from the bond and thus be convert to equity. The major attraction is that the bond is priced very low and the option to convert to equity is contingent on the future performance of the company and therefore does not have an immediate dilution effect on the company’s shareholding structure,†he said.
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(Source:ThisDay)
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