December 11, 2011
In line with the Central Bank of Nigeria's repeal of universal banking, United Bank for Africa Plc has kick started its evolution into a financial services holding company that will eventually emerge with four distinct listed companies at the end of the process.
This is as the management has assured shareholders of greater value from the restructuring process which was announced by the bank penultimate week inviting shareholders to a court-ordered extraordinary general meeting to approve the scheme of arrangement for its restructuring into a holding company.
At present, UBA is a bank holding company, with all its subsidiaries, assets and liabilities held under UBA Plc, the listed bank. Existing shareholders are invested in this listed bank today and own it 100 percent.
But under the proposed holding company structure, there will be three new public quoted entities created, in addition to the bank (UBA Plc) which is already listed on the Nigerian Stock Exchange.
They are UBA Holdings Plc which will comprise the bank, UBA Plc; UBA Africa Holdings Limited which comprises its 18 African subsidiaries (ex-Nigeria); and UBA Capital Holdings Limited which comprises all of UBA Plc's non-bank subsidiaries and associate companies.
UBA Plc will also remain as a quoted company on the NSE to comprise of its banking operations in Nigeria, New York, UBA Pensions, UBA FX mart (a bureau de change) and other non-majority equity investments.
The third company that will be listed, post-scheme, will be Africa Prudential Registrars Plc which will be created when UBA Plc spins-off UBA Registrars to existing UBA Plc shareholders and will operate as a separate entity based on the valuation of the company.
UBA Plc will also transfer all of its excess real estate assets to another spin off (based on valuation) to eligible shareholders of UBA Plc, which will be listed as Afriland Properties Plc and will operate as a property management and development company that will compete with the likes of UPDC Plc, FHA, Afribank Estates, HFP Engineering, and others in the real estate sector.
Africa Prudential Registrars and Afriland Properties are being spun-off in line with CBN's directive that banks should not have interests in such businesses.
UBA Plc started the process of its restructuring into a bank holding company some months ago, when it created and transferred its African banking subsidiaries into UBA Africa Holdings Limited and named Mr. Gabriel Edgal as the company's managing director/CEO.
From its non-banking subsidiaries, comprising its asset management business, investment banking, trusteeship, insurance, and stock-broking businesses, it also created UBA Capital Holdings Limited, with Mr. Victor Osadalor appointed as the company's managing director/CEO.
Other associate companies transferred to UBA Capital include UBA Capital London and UBA Metropolitan Life.
On the new holding company structure, UBA's executive director, Mr. Emmanuel Nnorom, explained that existing shareholders in UBA Plc will have 60 percent of their holdings reduced by way of cancellation, in exchange for 100 percent ownership in UBA Holdings Plc.
He added that the shares of UBA Plc will be simultaneously increased by 60 percent and allotted to UBA Holdings Plc, so essentially, existing shareholders of UBA Plc will still own UBA Plc 100 percent under the new arrangement, just that 40 percent will be direct and 60 percent of their holding will be indirect, that is, via UBA Holdings Plc (the Holdco).
In addition, Nnorom said that UBA Plc will transfer its ownership in UBA Africa Holdings Limited and UBA Capital Holdings Limited to UBA Holdings Plc, adding that, post-scheme, existing shareholders will own the four listed entities - UBA Holdings Plc, UBA Plc, Africa Prudential Registrars Plc and Afriland Properties Plc - 100 percent with only the 60 percent stake in UBA Plc being indirect, that is, via UBA Holdings Plc.
A breakdown of the new shareholding structure, he explained, will be such that for every 165 shares held in UBA Plc today, eligible shareholders will receive the following number of shares in the entities that will emerge on completion of the scheme: 66 ordinary shares in post-scheme UBA Plc (40 percent); 99 ordinary shares in UBA Holdings Plc (60 percent); 5 ordinary shares in Africa Prudential Registrars Plc; and 5 ordinary shares in Afriland Properties Plc.
Speaking on the restructuring, group managing director/CEO, Mr Phillips Oduoza said the restructuring of UBA Plc into a holding company “will add greater value to shareholders because the bank is no longer just a Nigerian bank, but has transited into a financial services group with bank subsidiaries in 18 African countries and several non-bank businesses.”
He said the value of the shares of the four quoted companies will be much higher than the value of UBA Plc today, as no value is being destroyed.
In the scheme of arrangement document made available to THISDAY, UBA indicated that the rationale for the restructuring was to address the key objectives of the bank, which include, but are not limited to:
• To assist the UBA Group to align its ownership operational structures in line with the CBN's licensing regime;
• Provides an opportunity to optimise the group's business portfolio, eliminating duplications across businesses and at the same time improving overall group coordination;
• Separated entities will be able to attract new capital targeted at the specific opportunities and strategic requirements of the respective businesses;
• Post-restructure entities will likely reveal an unlocking of value as investors will gain a deeper understanding of component sub-businesses of the UBA Group and will be better to ascribe vales that match the earnings and growth profiles of the companies;
• Restructuring will lead to further shareholder value maximisation in respect of the spun-off entities, as these entities will, post-scheme, be able to compete and grow their businesses from the efficient utilisation of their assets independent of the bank.
Also, the document showed that existing companies under UBA Plc that will be wound up include UBA Retail Financial Services, which will be subsumed under UBA Plc ownership; UBA Microfinance Bank Limited, which will remain under UBA Plc ownership; UBA Private Equity Limited, will remain under UBA Plc ownership; UBA Asset Management, which has transferred its shares to UBA Services (to be wound up) into UBA Capital Holdings Limited.
On the issue of multiple taxation which has remained unresolved for banks transiting into the holdco structure, Nnorom explained that UBA, in conjunction with other banks undergoing the same process, had met with the Financial Services Regulatory Committee and Federal Inland Revenue Service.
The banks, he said, made a presentation to both bodies on the impact of the current application of taxes on the emerging holding companies in the financial services sector.
He added UBA had also made representations to the Corporate Affairs Commission and Ministry of Trade and Investment requesting for waivers on stamp duties of about N200 million, which is presently under consideration.
Nnorom said it would not make sense for the holding companies to, for instance, pay taxes on dividends, after its subsidiaries might have paid taxes on the same dividends.
He explained that holding companies are essentially non-operating companies that hold the investments of the subsidiaries under them and make broad policy decisions affecting the group.
“It is actually the subsidiaries that make most of the income and pay dividends to the holding company and these dividends will form the bulk of its income, while further income could accrue from interest income and shared services.
“So since the subsidiaries will be paying taxes on the dividends to FIRS, it does not make sense for the holding company to pay taxes again on the same dividends as this would amount to double taxation,” he said, wondering what would happen if the subsidiaries make losses and don't pay dividends.
Nnorom added that the banks have pleaded with the authorities that minimum taxes should be applied to holding companies because of their size.
“We have asked that minimum taxes be applied on things like gross assets and turnover of the holding company, and the regulators have been very supportive and expect to come up with a position on the application of taxes for holding companies soon,” he said.
UBA is one of five banks that have opted for the holding company structure. The other banks are First Bank of Nigeria Plc, Union Bank of Nigeria Plc (once it concludes its recapitalisation), First City Monument Bank Plc, and Stanbic-IBTC Plc.
This is in line with the CBN's repeal of the universal banking model in the country. CBN set aside the universal banking regime in 2010 and gave banks the option to either divest of all their non-banking subsidiaries and become pure commercial banks or form a holding company, where the commercial bank will be properly ring-fenced from other non-banking activities.