How To Buy A Nigerian Bank With No Money


Sunday, May 10, 2015 11.48 PM / News & Investigations 

The common impression hitherto had been that you needed tons of money to acquire a financial institution. This notion developed more credence during the 2004/2005 Chukwuma Soludo led banking consolidation era where banks had to raise a minimum capital of N25 billion to obtain a license.

Fast forward to 2011 when there were at least six (6) mergers in the banking industry as part of the resolution of the financial crisis, without as much hassles.

By 2014 however, the market had found a new way to handle acquisitions of banks. Here are a few of such transaction:

  • Heritage Bank, the upstart (recently revamped from the old SGBN), acquired Enterprise Bank for N56 Billion Naira;
  • Atlas Mara, the financial conglomerate acquired a 20.9% stake in Union Bank from AMCON for $270 million or N45 billion;
  • Qatar National Bank acquired 11% stake in Ecobank for $283 million or N47 billion;
  •  Sterling Bank attracted an investment of N20 billion from a core investor for a 25% stake;
  •  Unity Bank recapitalized and raised equity of N39 billion to shore up it capital base;
  • Skyebank acquired Mainstreet Bank for a whopping N126 Billion ($750 Million at the time);
  • A group led by Carlyle Private Equity invested $147 million or N24billion into Diamond bank for an 18% stake; and lastly
  •  For the non-banking sector, AXA acquired 77% stake in Mansard Assurance for a whopping 193 Million Euros or N43 billion.

In aggregate, the financial services sector saw the inflow of well over N380 billion (approx. $2billon) in 2014 – or did it?

Some Perspective
In the transactions involving Atlas Mara, Qatar National Bank, Carlyle and Axa, one can be reasonably certain that funds actually changed hands in the transactions. These transactions were conducted at arms length and the counter parties were unrelated and where not Nigerian government institutions.  

In the case of Sterling Bank, unless the board and management are working together to dilute other shareholders, then one can assume that this was an arms length transaction and that there was an inflow of funds.

However, the three other highlighted transactions have a certain peculiarity to it that encourages further investigation and scrutiny.

The Guidance - CAMA 

Under Section 159 (1) & (2), the Act says:

159. (1)   In this section, financial assistance includes a gift, guarantee, security or indemnity, loan, any form of credit and any financial assistance given by a company, the net assets of which are thereby reduced to a material extent or which has no net assets.


  (2)  Subject to the provisions of this section -


(a)where a person is acquiring or is proposing to acquire shares in a company, it shall not be lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place; and


(b) where a person has acquired shares in a company and any liability has been incurred (by that or any other person), for the purpose of this acquisition, it shall not be lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

A layman’s read of this section of the CAMA provision clearly states that it is unlawful to use the assets of a company to buy its own shares.

Better said, it would be an informed position to infer/deduce that the use of the assets of the company as a “security to obtain a loan” to acquire the shares of the company would be unlawful and does not represent a far and reasonable practice.

It is worthwhile to note however that in the United Kingdom, private companies are now free to offer financial assistance while minority shareholders’ remain protected by other safeguards under their Act including ensuring that the company’s articles have to authorize the provision of financial assistance.

Given that our laws lag behind practice, we can therefore use the following three transactions below to understand how certain peculiarities of these CAMA provisions played out.


Unity Bank Plc 

Before embarking on the Rights Offering, the company did a 1:5 share reconstruction and reset the price of the shares to 50k which in other climes, would be challenged by shareholders.

What that action immediately did was to reduce the values of the shares of each shareholder by 80%. Now, if it was the case that all shareholders had the right to participate in the Rights Offering on a pro rata basis, then there would be no real issue.  It would appear however that certain shareholders were tagged as “Core Shareholders” and were then given the Right of First Purchase in the Rights Offering.

This is beyond innovative and creative in financial re-engineering. There is the unanswered question as to whether or not all the funds raised were structured funds using the assets of the bank as securities.

Investigations recently indicates that the common structure utilized was one where Federal Government Bonds of the Bank were moved to other financial institutions as placements and then the bank (usually at very high levels) agree to use those instruments as securities for loans to private individuals or entities (presumably connected with the bank).

Enquiries at the Central Bank of Nigeria did not yield assurances as to the source(s) of the funds underlying the N39 billion capital raised or the structures deployed. Interest in understanding whether or not one of these structures was used remain high, if only for purposes of gaining a better understanding of the financial structures deployed in our markets.


Heritage Bank 

The case of Heritage Bank remains an enigma in Nigeria’s financial market. By way of background, this bank was the old Societe General Bank of Nigeria (SGBN) that lost its license for significant losses which was later recapitalized in 2012 by a team/consortium led by Mr. Ifie Sekibo, a former banker and managing director of an insurance entity.

In 2013, Heritage Bank attempted a Private Placement to raise a total of N7.4 billion. However, our review of the financial statements incorporated in the private placement document revealed that the company had a negative N1.8 billion of Shareholders Funds and N23 billion in Tier 1 and Tier 2 Capital combined. The Tier 2 capital was a seven (7) year loan from CBN of N25 billion.

How Heritage Bank was allowed to operate with that type of financial arrangement remains befuddling. The issue(s) around its second private placement is covered in a follow up review about the state/condition of Nigerian banks.

In addition to this negative shareholders fund, the company had operating losses of N3.5 billion and N1.7billion in 2012 and 2013 respectively. All of the above information are extraordinarily disclosed in the private placement memorandum and not the published accounts. From our understanding, the bank is yet to publish its audited financials for 2013 and 2014.

To this day, how Heritage Bank was declared the winner of the Enterprise Bank bidding process remains a puzzle for which the Central Bank of Nigeria / AMCON is yet to fully enlighten the market on. For record purposes, this bidding process had the likes of Fidelity Bank and Abraaj Private Equity (a leading private equity investor in global growth markets managing US$ 7.5bn in asset and operating through 33 offices in Asia, Africa, Latin America, the Middle East and Turkey)as reserve bidder 1 and reserve bidder 2 respectively.

So how does a bank with no capital and has been relatively unsuccessful in raising significant amounts in its private placement find the money to buy Enterprise Bank?

Heritage Bank funded the transaction using largely debt finance. It appears it paid the initial deposit of N11 billion from funds raised but the remaining N45 billion, as investigations revealed, was borrowed largely from The African Export-Import Bank (Afreximbank), a pan-African export-import bank established in 1993, financing and promoting intra- and extra-African trade. 

Our understanding of the transaction is that the acquiring entity – Heritage Bank Investment Company (HBIC) entered into a loan agreement for $200 - $250 million with AfriExim Bank, the transnational banking institution headquartered in Cairo, Egypt.

The collateral for the loan was the future promise of the Federal Government Bonds of Enterprise Bank as security.  So, for all intents and purposes, the assets of the company being bought are being used to secure the loans of the transaction.

Beyond the legality of the transaction, the question for the Central Bank of Nigeria is why did they allow a company without regulatory capital to acquire another entity when at the time of the transaction, the technical validity of its license should have been under review; not in the least on account of the high gearing involved?


Skye Bank - Mainstreet 

When the amount bided by Skye Bank for Mainstreet Bank was announced, the market took a pause. The math appeared unclear based on publicly available records and the most recent returns rendered. Skye Bank Plc with a market capitalization of less than N40 billion was announced to have agreed to pay N126 billion for Mainstreet Bank. With that amount, Skye Bank could have bought FCMB and Wema Bank or Sterling Bank and Wema Bank, while offering good premiums to each bank’s shareholders. So why pay so much for Mainstreet Bank? Is there something about the bank that the market missed, players wondered.

Despite talks about a possible sweetheart deal, the professional advisers engaged by AMCON represented that the bid met their mandate and true enough; it was the job of the Central Bank of Nigeria (CBN) to state otherwise.

To fund the transaction, Skye Bank Plc first instituted a N30 billion Commercial Paper program to pay the deposit for the transaction. It then obtained a bridge financing of N100 billion from four banks. The bridge financing was backed using Mainstreet Bank’s AMCON Bonds that were due for redemption shortly after the closing of the transaction.

Most will consider this an act of financial ingenuity, yet it remains a classic case of in-and-out i.e. Skye Bank Plc borrows money from banks, pays AMCON, AMCON redeems Mainstreet Bank’s AMCON Bonds and Skye Bank (who now owns Mainstreet Bank) takes the cash to pay the four banks back.  


So there you have it. We moved in 2014 towards a system of building upon leveraging under a supposedly active and ever vigilant regulator. The fact that you can buy a bank without any real money may represent an ingenious way of funding the acquisition of a financial institution or two but remains a real problem further down the line for the stability of the financial system.

We understand that the Central Bank of Nigeria has paid two visits in six (6) months to one of the banks reviewed above as part of its “routine” investigations to the obvious distress of the bank involved. We would not be holding our breath on a significant change in status quo but hope we can all learn from the regulatory inertia that delivered the above scenarios; and look forward to an improved corporate governance climate championed by the regulator.


Related News

1.    AMCON approves acquisition of Enterprise Bank by Heritage – Nov 29, 2014

2.    Atlas Mara Buys 21% Stake in Union Bank of Nigeria – Sep 5, 2014.

3.    QNB becomes main investor in Ecobank, acquires 11% shares for N283m – Sep 15, 2014

4.    Skye Bank - The Math Adds Up says CBN, Acquisition Payment of Mainstreet Bank Done – Nov 01, 2014

5.    Carlyle Group acquires 18% stake in Nigeria's Diamond Bank – Dec 7, 2014

6.    Mansard Insurance Plc Principal Shareholder to ... – Nov 28, 2014

7.    How mergers and acquisitions will redefine banking sector ...


9.    Financial assistance in acquisition and structured financing – Dec 4, 2013

10. Debt Pushdown: A Means to Avoid Financial Assistance .- Jan 20, 2015   

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