COMMENT - Issues in Banks' Recapitalisation EGMs



Thursday, September 29, 2011 6:43 AM / Ibrahim Bello 



I follow your coverage of the ongoing recapitalization EGMs of the banks and would like to draw attention to the following issues:


1. Lack of clarity in the information being fed shareholders and suspicion of attempt at being economical with the facts; and


2. Impact of proceedings and projected outcomes on the integrity of the processes and rules of the stock market


On the issue of lack of clarity, the Scheme of Arrangement published by Intercontinental Bank, for instance, showed that the proforma shareholding of Intercontinental Bank after the recapitalisation would be 8.32% of the shares outstanding to be held by Lulu Briggs Olu Benson, while the rest of the shares (91.68%) would be held by “Nigerian citizens and associations”. Curiously, the proforma statement of shareholding did not highlight the fact that Project Star Investment (the Access Bank SPV) and AMCON would hold 75% and 15% of the shares, respectively, leaving “Nigerian citizens and associations” with less than 2%. See pages 4, 21, and 23 of the scheme document.


Incidentally, Chapel Hill is the Issuing House in the Intercontinental Bank and Union Bank transactions, and the proforma statements of shareholding of both banks were written with varying details!


Also, at what price per share are 3 billion shares being allotted to AMCON, if the Financial Accommodation Amount is N548, 348, 992, 920.00?   


In the case of Union Bank, it was said in page 15 {iii(iiic)} of the Scheme of Arrangement that AMCON would invest the Financial Accommodation Amount of N305, 700, 000, 000.00 for 3, 394, 407, 265 ordinary shares of Union Bank. The arithmetic shows that AMCON would be paying N90 per share! Is this right? If it is right, what could be the explanation?


On stock market processes and rules, the proforma statement of shareholding (page 93 of the Union Bank scheme document) shows that only 14.96% of the bank’s shares would be available to existing shareholders. The rest would be held by AMCON and the consortium of core investors. This is worrisome and particularly important as it is from this holding (the holding by the existing investors) that the free float would come. Considering that existing shareholders includes all the subsidiaries of UBN that are also major investors in the bank, it leaves little to the imagination that at the end of the day the free float on Union Bank may be less than 5%. (By the way, why did the Annual Report not state shareholders with more than 5% of the bank’s shares? Or say there was none if no existing shareholder had up to 5% of the shares outstanding?)


In the case of Intercontinental Bank, it could be said that the bank would in any case be absorbed by Access Bank, thus rendering the proforma statement of shareholding inconsequential in the long run. But until Intercontinental Bank is delisted, it would not look good that its free float is a mockery of what it should be. It does not portray the stock market in good light.


In view of the observed future state of affairs as they relate to the free float of Union Bank and intercontinental Bank, what happens to the minimum float requirement of The Nigerian Stock Exchange? What happens to the pricing efficiency of the market as more of the listed companies now have unacceptably narrow free float? At what point would a comment by the Securities and Exchange Commission (SEC) and the Stock Exchange be necessary? Did SEC not see this in its approval of the draft scheme documents?


From all indications, the vexed issue of rescued banks’ recapitalisation is being treated in isolation of the overall health of the stock market, which was why the chairman of Union Bank warned darkly in his statement to shareholders (page 12 of the scheme document) that failure to implement the proposed transaction may result in the Central Bank of Nigeria (CBN) and National Deposit Insurance Corporation (NDIC) exercising their powers to protect depositors and creditors. Of course, the logical question, proceeding from this warning, is to ask who is protecting shareholders – particularly the small shareholders.



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