By Stanley Opara and Ademola Alawiye with agency report

Wednesday, 12 Jan 2011

The Asset Management Corporation of Nigeria said on Tuesday that it planned to issue an additional N500bn ($3.3bn) in zero-coupon bonds to clear up the remaining bad loans of Deposit Money Banks by March 31.

The Chief Executive Officer, AMCON, Mr. Mustapha Chike-Obi, said the corporation had issued three-year zero-coupon bonds with a face value of N1.03tn to 21 lenders in December, in exchange for non-performing loans, paying out a discounted total of N770bn.

Among the nine rescued lenders, Union Bank of Nigeria Plc received more than N200bn, the highest amount for its bad loans, AMCON said.

Reuters quoted Chike-Obi as saying that margin loans accounted for about 40 per cent of the total non-performing loan purchase.

”We are going to clear up everything by March 31, and at that point, we would have issued proper bonds, fully tradeable,” Chike-Obi told Reuters in a telephone interview.

”I think we will be spending around N500bn more,” he added.

AMCON had said in December it would register to issue up to N3tn in tradeable bonds, although it expected to use only N2.4tn to N2.6tn in the recapitalisation process.

It said the bad loans would initially be exchanged for “consideration bonds,” which the banks would hold while it registers fully tradeable debt instruments. The consideration bonds will then be retired and exchanged for liquid bonds.

Chike-Obi had said that the corporation‘s estimate on loan acquisition in the first phase was over N800bn.

He said, ”Our estimate of the amount of loans we will be buying in this first phase is in the neighbourhood of between N800bn and N1tn. And we are pleased to say that, from the submissions we‘ve received, we are in that range. It is important to note that the amount we are paying for these loans is different from the face value of the loans. The aggregate face value of those loans is about N2.2tn. We are buying them at an appropriate price of between N800bn and N1tn.

“The end process is that we take delivery of the non-performing loans, and the banks, instead of being stuck with illiquid, non-performing assets, we’ll have bonds that they will cash as they make new loans, and use the proceeds to fund the new loans. They can create new portfolio of loans in line with CBN‘s prudential guidelines. And as they make loans, they will be able to fund them.”

He pointed out that the corporation had a formula for the margin loans and that there were prices for all listed securities.

“For loans secured by things other than listed shares, we have time to deal with the issue, so it is not going to be difficult at all,” he added.

The “bad bank” was set up to help recapitalise lenders rescued in a $4bn central bank bail-out in 2009 and to restore lending in sub-Saharan Africa‘s second-biggest economy.

It aims to bring the nine rescued banks‘ negative shareholders fund back to zero before new investors come in, and return them to minimum capital adequacy.

It also plans to clean up the entire banking sector in the country. Part of the N500bn additional bond issue will be used to soak up non-performing loans from banks other than those rescued in 2009.

Oceanic Bank International Plc said it also received around N200bn from AMCON, while Intercontinental Bank Plc said it received over N146bn and expected additional bonds in a subsequent purchase.

A spokesman for Wema Bank Plc said the lender had received N15.2bn from AMCON.

A source said that Bank PHB Plc got N140bn in exchange for over N300bn worth of bad loans. Other banks could not be reached for comment on how much they received from the state-owned asset management company.

Source: Punch