Thursday, 02 December 2010
The Asset Management Corporation of Nigeria (AMCON) plans to sell N2.5 trillion ($16.6 billion) of zero coupon bonds, Mustafa Chike-Obi, managing director, disclosed yesterday.
The sale will finance the purchase of toxic debt from commercial banks. The first tranche of the bonds will be sold by December 31, with much of the sale taking place by the end of the first quarter of next year, Chike-Obi said.
He assured that the bonds “will be guaranteed by the full faith and credit of the Federal Government of Nigeria”.
Chike-Obi also revealed that the first stage purchase of all the margin loans currently in the banking industry and all the Non-Performing Loans (NPLs) of the rescued banks, totaling approximately N2.3 trillion naira of principal value is on the Corporation.
He said the Corporation intends to recapitalise nine of the rescued banks to a position of zero equity, saying that it would be in conjunction with binding merger or acquisition deals that would allow the banks to operate according to prudential guidelines and to continue to play their crucial role in driving the Nigerian economy towards the laudable goals of national 2020 vision.
The AMCON boss said the Corporation has plans to fund the NPL purchases and the recapitalisation by issuing bonds and by assuming about N500 billion that the CBN provided to the rescued banks in its initial emergency intervention.
He further explained that the funding plan approved by the board of AMCON after consultation with both the ministry of finance and the Central Bank of Nigeria (CBN) requires that the AMCON bond issue be in two parts.
According to Chike-Obi, the N2.5 trillion will bring in approximately N2.0 trillion cash and the yield will be based on marketing pricing with a tenure of three years.
On the bond issuance, he added that it would be a re-finance of the first tranche of bond after three years, with a coupon-bearing seven year bond, having essentially the same characteristics as the retired bonds described earlier.
The AMCON boss said the zero-coupon bonds were chosen, in the first place, to allow AMCON a reasonable period to complete the restructuring and recovery of acquired NPLs.
“During this conservatively estimated three-year period, AMCON is projected to receive little or no income and would have found debt service less problematic”.
Continuing, Chike-Obi noted that the re-open feature of the bonds allows AMCON to issue bonds only as needed for transactions and hence, will have a minimal crowding-out effect on other bond issuers. This, he said, is expected to reduce the total interest cost to AMCON since the average tenure of the bonds will be effectively less than three years.
In choosing to pursue full-listing and registration, Chike-Obi declared that AMCON is convinced that the resulting deepening of the bond market will be very attractive to a wider range of domestic and foreign investors, and thus reduce the burden on the CBN as the primary source of liquidity for the bonds, while providing efficient price discovery for future AMCON bond issues.