Monday, October 27, 2014 10.52 AM / Research
This morning, the market received information of a Central Bank of Nigeria (CBN) circular limiting the amount of FX borrowings a Nigerian bank can take relative to its Tier 1 capital.
The circular referenced BSD/DIR/GEN/LAB/07/037 and issued on Friday, On Friday, October 24, 2014 seeks to set out the apex banks policy on “foreign currency borrowings of banks through foreign lines of credit and issuance of foreign currency denominated bonds (Eurobonds)”.
In the main, the new law reduces the amount of borrowings from the maximum 200% to 75% of shareholders funds (Tier 1) – see CBN Reduces maximum limit of FX borrowing to 75% of Capital
This position will seem to corrobate our position in “The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case” and in effect limit the capacity of Skye Bank Plc to finance the acquisition of Mainstreet through BORROWING to a limited degree, creating a shortfall of N5.5bn approx!
The immediate window for full compliance would appear to be equity financing which would appear ‘quashed’ due to "a timing deadline".
Yet, the talk on Customs Street is that a deposit for shares option may offer a head-room, though how that ties in with the book balances remains to be seen.
The deadline of November 03, 2014 is five days away and it would appear to be a race against the clock for a bid adjudged sufficiently backed and pitched.
It is a trite fact that to have created and booked additional capital without securing the bid, was to have created excess capital based on uncertainty hence the situation the bank is now confronted it. Yet, the reality of the timing challenges only seeks to make this a feat of sorts to pull of.
The expectation in the market is that a lot can still happen in the days ahead, even as questions remain on how.
1. CBN Reduces maximum limit of FX borrowing to 75% of Capital
2. The Surprising New Math of Acquisition of Banks in Nigeria – The Skye Bank Case
3. Acquisition of Mainstreet Bank: Skye Bank faces fresh hurdles - Tribune
4. Skye Bank Pays 20% of Mainstreet Bank's Bid Price - ThisDay
5. Skye Bank Plc and AMCON Sign Agreement on Acquisition .- Proshare