By Stanley Opara with agency report

Wednesday, 15 Dec 2010

The Asset Management Corporation of Nigeria is on track to buy all bad bank loans by the end of December and recapitalise the nine banks rescued last year by the second quarter of 2011, its Chief Executive Officer, Mr. Mustapha Chike-Obi, has said.

According to a Reuters report on Tuesday, Chike-Obi said AMCON would register to issue up to N3tn ($20bn) in tradeable bonds, although it is expected to use between N2.4tn and N2.6tn in the recapitalisation process.

The corporation was set up to help recapitalise the banks that were rescued in the $4bn Central Bank of Nigeria bail-out last year and to restore lending in the economy.

It will issue bonds to fund the purchase of non-performing loans across the banking sector and to enable it to bring the nine rescued banks‘ negative shareholders funds back to zero.

”We are going to be filing a registration, which allows us to issue up to N3tn. We will issue bonds in tranches as needed,” Chike-Obi reiterated.

”The first tranche will be something in the area of maybe N500bn. As we do deals and we need to recapitalise the banks one at a time, we will issue bonds specifically to meet any needs we have,” the former Goldman Sachs banker said.

Chike-Obi estimated that N900bn would be needed to absorb the total non-performing loans and a further N1.5tn to N1.6tn would be needed to bring the lenders rescued in the bail-out back to zero from negative shareholders funds.

The total issuance by AMCON could be several times what the Federal Government usually raises in the debt market each year, raising concern from some analysts that the market could struggle to absorb the bonds, pushing up yields and interest rates.

Nigeria had raised around N1tn through government bond issuance in the first 10 months of 2010.

Chike-Obi said AMCON bonds were replacing existing non-performing assets and that he did not expect the rescued lenders to trade them immediately.

”It would be very unwise for any bank to rush to the market and liquefy those bonds. Our expectation is that these banks would hold onto those bonds because they are yield assets and, as they make loans, they will liquefy them and fund the loans,” he added.

The AMCON boss anticipated that in the first year, N300bn to N500bn worth of the bonds would be introduced into the market, a volume which he said could easily be absorbed.

After the CBN bailed out the nine lenders that were deemed to be so weakly capitalised that they posed a systemic risk, it began seeking new investors to recapitalise them.

AMCON‘s role is to absorb non-performing loans and restore shareholder funds to zero, but new investors will be needed to return the lenders to minimum capital adequacy and bring them off the apex bank’s lifeline.

 

Source: Punch