By Stanley Opara with agency report
The Asset Management Corporation of Nigeria will encourage short-selling by lending its assets to traders who want to borrow, Chief Executive Officer of the corporation, Mr. Mustafa Chike-Obi, has said.
He said in an interview in Lagos, on Thursday, “If they want to short-sell and want to borrow the assets, I can lend them the securities.”
The company is primarily set up to buy bad debts from banks, and Bloomberg quoted Chike-Obi as saying, Short selling has its negative connotations. He, however, said this was done in most developed capital markets.
An analyst with Lambert Trust and Investment Company Limited told our correspondent in a telephone interview on Thursday that the short selling model was common in advanced markets and involved selling a stock you don’t have.
The analyst, who would not want his name mentioned, said, “The seller offers the security at a high price to a potential investor, hoping that the price will fall.
Because he does not have the stock, he buys same at a lower price later and delivers the securities to the investor at the initial price (which is higher).
The seller, however, makes a profit from the transaction.
AMCON on December 31, 2010, signed debt purchase agreements with 21 of Nigeria’s 24 banks and issued N1.04tn ($6.8bn) of so-called consideration bonds that are not tradable to buy non-performing loans from them.
The debt purchases are expected to help resume credit extension by banks, some of which almost collapsed in 2008 after lenders extended billions of dollars in loans to stock speculators who were unable to repay them.
“Amcon will hold the assets for at least two years before selling them, and when it wants to sell, it will be announced and publicised so that nothing untoward happens,” Chike-Obi said on Johannesburg-based CNBC Africa television three months ago.
The corporation had asked the Central Bank of Nigeria to approve a second round of debt purchases, Chike-Obi said on February 22.
Chike-Obi has said, Non-performing loans to be purchased under the second phase will be from the healthy banks and others we missed in the first phase.
AMCON delayed issuing N1.5tn of bonds on January 31 because it had not obtained all regulatory approvals. Part of the debt will replace the consideration bonds and would be tradable.
“The hard deadline for the bond issuance is March 31, while the recapitalisation of the bailed-out banks will be completed in the second quarter, Chike-Obi said recently.
Source: Punch
