11/11/2010

Present at the meeting were the MD of AMCON, Mustafa Chike Obi; Celine Loader, Consultant to CBN on Communications and Public Relations; Folakemi Fatogbe, Special Adviser to the Governor on Risk and Director of Risk Management; amongst others. The bulk of the audience constituted stockbrokers, investors and few analysts.

 

Responses to some of the questions asked are as follows:

• 1st 25% of the bonds issued to the Banks can be repo’d with CBN, and the balance traded for liquidity OTC. The bonds will be tradable and CSCS is likely to be the depository.

 

• AMCON will discuss with every borrower, and likely outcomes could be:

o make loans performing again

o redevelop projects

o forgiveness

o forbearances

o recovery

o restructurings

 

• AMCON cannot give forbearances to borrowers involved with tainted assets, which a lawyer present at the meeting described as: assets that were illegally acquired with stolen money; loans not properly given; loans taken by directors in contravention with the rules.

 

• Based on AMCON/CBN estimates, Banks should contribute c.N1.8 trillion to the Sinking Fund over a 10-year period. The contribution will be based on 0.3% of their balance sheet size (more like total assets, according to the Bankers Committee document).

 

• The Federal Ministry of Finance and CBN own AMCON 50:50. Government owns it 100%.

• The Sinking Fund will be managed by a Board of Trustees and used in year 10 to retire AMCON’s debt.

• AMCON transactions with Banks will be made available to the public.

• In determining the valuation model to be used:

o AMCON analyzed valuations across 12 markets over a long period, including but not limited to Brazil, Malaysia and Indonesia, and discovered that Banks were priced around 2x book value, while Nigerian Banks are priced at 1.2x book value.

 

o AMCON determined that a 60% premium on the 60-day price gives roughly the 2x book value.

 

• AMCON expects to hold assets for at least 2-3 years, but there could be exceptions. Sales would be announced in advance and publicly. No underhand sales.

 

• The representatives were informed that if the Banks had sold the collaterals, the brokers wouldn’t be in the current situation. The response was that all borrowers would be communicated with and on a case by case basis, AMCON would consider:

 

o where there was misbehavior/default on the part of the borrower

o where there was misbehavior on the part of the lender

o where documentation exists

• AMCON is inclined not to be in a voting situation in companies which it holds their shares; however, AMCON must protect its investments. It will still discuss and think through further going forward on this issue, as it is aware of Nationalization concerns.

 

• A question surrounded how AMCON would value unlisted shares funded by margin loans. It responded that any such company is unlikely to be a big factor in AMCON’s valuation decision; however, such companies would be considered on a case by case basis, like MTN for example.

AMCON would acquire shares of unlisted companies, but listed shares comprise 80-90% of the problem.

• AMCON will still have to go through complex discussions with the Banks and buyers on recapitalizations.

• Where the collateral exceeds the value of the loan, AMCON will sell the collateral to recoup the loan and cost, and return the excess to the borrower.

• Bonds will be issued in 5 or more different tranches, and AMCON has discussed extensively with relevant parties on the impact.

• AMCON will be taking over the NPLs with all the rights and obligations (court cases) attached.

• Hope to issue first bonds by the 30th of December 2010 (year end basically, which is 31^st December).

• First issuance will be zero coupon 3-year bonds, which will be refinanced with a subsequent 7-year issue.

• What is compulsory is that Banks with NPLs in excess of 5% of their gross loan portfolio must sell to AMCON (my inference was that this would apply to cleared Banks also).

• AMCON’s head office by law is in Abuja, but its operational office is in Lagos.

• 60-day average price ending 15 November + 60% premium is pricing for margin loans.

• If the loan isn’t in an eligible financial institution, AMCON cannot purchase (one would have to view the Act to understand this).

• Cannot say absolutely that once AMCON assumes liabilities, brokers are discharged. However, all previous negotiations between parties would be upheld on a case by case basis.

 

Source: Vetiva