By Chijioke Ohuocha
* Latest two tranches priced with 11.8 percent yield
* AMCON bonds to be eligible for short-selling
* Bad loan ratio to be capped at 5 percent
Nigeria‘s state asset management company completed a 1.7 trillion naira ($11 billion) bond issue on Wednesday, attracting yields significantly below equivalent government treasuries on strong demand.
The Asset Management Corporation of Nigeria (AMCON) was set up last year to absorb bad bank loans, exchanging them for government-backed bonds, with the aim of rebuilding commercial bank balance sheets after a $4 billion bailout in 2009.
It issued the 3-year zero-coupon bonds in three tranches. The first 1.15 trillion naira tranche, which attracted a yield of 10.125 percent, is to be swapped for consideration bonds that were launched in December to absorb bad loans from 21 banks before AMCON won regulatory approval to issue tradeable bonds.
The second 20.7 billion naira tranche was issued via a book building which opened on Friday and was heavily oversubscribed, while the third 535 billion naira tranche was issued to acquire additional non-performing loans from 22 lenders. Both tranches were priced with an 11.8 percent yield.
“We are very happy with the 11.8 percent yield. We were two times oversubscribed but we cut off the subscription at 11.8 percent because we felt that was a good yield,” AMCON Chief Executive Mustapha Chike-Obi told CNBC Africa television.
“As of today, equivalent federal government 3-year treasuries are trading at a yield of 12.25 percent, so effectively we are about 40-basis points tighter than equivalent (treasuries),” he said.
The bonds will be listed on the Nigerian stock exchange.
Chike-Obi told Reuters last month he expected the bonds to stimulate trade in the government debt market by increasing liquidity and making the yield curve more accurate.
Unlike other debt instruments in Nigeria, they will be eligible for short-selling, creating hedging opportunities in the debt market for the first time.
STRICTER BAD LOAN REGULATION
The central bank will target a non-performing loan ratio of 5 percent across the industry after AMCON absorbed lenders’ existing bad loans, Samuel Oni, director of banking supervision, said on Tuesday.
That compared to pre-AMCON levels of 50 percent, Oni said.
“This clean-up should bring sector non-performing loans to their lowest levels in over a decade and is a major milestone in the banking reforms,” one banker in Lagos said, declining to be named as he was involved in the AMCON bond issue.
“Nigeria has signalled its financial markets are back,” the banker said, adding the issue was tightly priced despite uncertainty caused by postponed elections and a surprise 100 basis point interest rate rise to 7.5 percent two weeks ago.
Chike-Obi said any bank whose non-performing loans rose above 5 percent would have to sell them to AMCON.
“I think it de-risks the system and it makes handling problems (easier) in smaller, manageable chunks,” he said.
Seven of Nigeria’s 21 locally-listed banks have so far announced positive earnings for 2010, suggesting balance sheets are being repaired faster than expected after heavy write-downs and loan losses due to provisions following the bailout.
Source: Reuters
