AMCON May Step in to Save Union Bank's Recapitalisation
Category: Mergers & Aquisitions
December 4, 2011
Indications emerged at the weekend that the intervention by the Asset Management Company of Nigeria may be the saving grace for Union Bank of Nigeria Plc (UBN) to round up its recapitalisation process, following the logjam that has arisen from its effort to shore up its capital base.
UBN had signed a transaction implementation agreement with a private equity consortium led by Africa Capital Alliance Limited (ACA) and the Overseas Private Investment Corporation (OPIC) to inject Tier I and Tier II capital into the bank for its acquisition.
But the process of UBN's recapitalisation by the groups has been stalled for a number of reasons arising from the refusal by the Securities and Exchange Commission to approve the bank's rights issue, which was a perquisite for the injection of funds by ACA and OPIC.
Sources disclosed last week that the intervention of AMCON, a shareholder in the bank, became imperative following concerns that the reluctance by some of the core investors to inject funds into the bank was causing serious delays in the bank's recapitalisation effort.
According to the original plan, AMCON was expected to inject funds into UBN to bring its negative asset value to zero, following the failure of the bank to pass the joint audit test of the Central Bank of Nigeria and the Nigeria Deposit Insurance Corporation in 2009.
The bank also banked on its core investors comprising a consortium led by Africa Capital Alliance Limited which pledged to inject $500million as Tier I capital into UBN.
UBN further placed its hopes on OPIC, a US development finance institution, which was to inject an additional $250million as Tier II capital into the bank.
The fourth leg of the recapitalisation process was a N9.5 billion rights issue for the existing shareholders of the bank.
However, trouble started when ACA could not keep to its end of the bargain by releasing only $300 billion, owing to the exit of two members of the consortium.
The unfavourable development coincided with the refusal by the Securities and Exchange Commission to approve UBN's application for its rights issue, an action blamed on the failure by UBN to give a satisfactory account of N9.3 billion purportedly spent on its London branch from funds raised in its previous rights issue in 2006.
Sources close to the deal disclosed that as a result of the uncertainty created by the development, OPIC began to foot-drag on its commitment. The US institution was said to have suspended the injection of $250 million meant for Union Bank, until after the bank has completed its rights issue and the balance of $200 million is injected by the ACA consortium.
THISDAY gathered that sensing the apprehension of OPIC and other stakeholders of the bank, AMCON was compelled to intervene in the logjam over the delay in the bank's application to SEC for its rights issue.
Sources from SEC confirmed that AMCON has reached out to the capital market regulator and that there is a likelihood of SEC approving the rights issue before the end of the year.
It was also gathered that AMCON has expressed its readiness to inject additional funds into the bank should ACA fails to bridge the balance of $200 million required by UBN. Spokesperson for the CBN, Mallam Mohammed Abdullahi, who confirmed the exit of some investors from Union Bank, however explained that a new investor has filled the gap and that there is no threat to the bank's recapitalization process.
He said: “The issue of core investors moving out of Union Bank occurred two months ago and since then another core investor has come and the money has started coming, so the recapitalisation of the bank is on course without any problem.”
UBN's executive director, Corporate, International and Investment Banking and Treasury, Mr. Philip Ikeazor, who spoke with THISDAY last Thursday acknowledged the delay over the bank's rights issue based on the failure of the former management of the bank to give a proper account of the proceeds of its rights issue undertaken in 2006.
He however assured that AMCON as one of the shareholders of UBN has written to SEC and that the “embargo” will soon be lifted.
He explained that the controversial N9.3 billion purportedly spent on the London branch of the bank was supposed to be part of the bank's toxic assets identified by the audit team that probed the account of the bank in 2009, adding that SEC should be commended for doing things in accordance with laid down rules.
He dismissed the reports that some of the banks investors have exited, explaining that all the parties in the consortium have funded the capital account of the bank pending the allotment of shares.
On why it has taken the bank such a long time to conclude its recapitalisation unlike three other banks, namely, Intercontinental Bank Plc, Oceanic Bank International Plc and Equitorial Trust Bank Limited, Ikeazor said it is a different ball game altogether given the fact that while the said banks were acquired by other Nigerian banks, Union Bank is in talks with a consortium of investors.
Members of the consortium led by ACA include ACA B - Holdings Limited (ACA Managed Fund), FMO Netherlands; Standard Chartered Private Equity; Auctor Capital (Carlye Capital, High Vistar); the Keffi Group VIII LLC (Keffi Group, JC Flowers, BGI); ABC Holdings Limited (Banc ABC Botswana); and Discovery Group of Connecticut, USA.