Tuesday, March 18,
2018 08.02AM / Bloomberg
Global Inc. is looking to inject as much as $1 billion to recapitalize
Nigeria’s Unity Bank Plc, which is struggling to build
buffers after a slowdown in Africa’s biggest economy, according to two people
familiar with the matter.
New York-based Milost offered to
invest $700 million in equity and $300 million in five-year bonds that can be
converted into shares in the Nigerian lender, said one of the people, who asked
not to be identified as talks are confidential. The private-equity firm will
get an initial stake of about 30 percent in the Lagos-based bank in exchange
for its first equity investment of $250 million, the person said.
The transaction is still subject to a
due diligence as well as regulatory approvals, the people said. The first part
of the deal may be completed in the second quarter, one of the people said. The
rest of the cash will be drawn down in intervals over a period of four years,
provided Unity Bank has sufficient shares to issue to Milost, one of the people
Some small- and mid-sized Nigerian lenders
are battling to rebuild capital levels after a slump in oil prices triggered a
foreign-currency shortage and a contraction in the country’s economy in 2016
made it difficult for businesses to repay loans. Unity Bank, which was formed
out of the merger of nine banks between December 2005 and March 2006, said in April
last year that it is in talks to sell its non-performing loans to avoid
penalties after missing a deadline set by regulators on its recapitalization
Signs of Life
An investment in Unity Bank will be
Milost’s third in a publicly traded Nigerian company since it agreed to pump
$350 million into oil-services company Japaul Oil & Maritime Services Plc
in February and to provide a $250 million financing facility
to Resort Savings & Loans Plc. Several calls to the numbers listed on
Milost’s website went unanswered.
The private-equity firm is targeting
companies that trade at less than half of their intrinsic value using a
facility combining debt and equity that it calls the Milost Equity Subscription
Agreement, it said in an emailed statement on Monday.
Milost buys shares of a company at a
minimum 50 percent premium to its market value, and then pegs this price over
the next 90 days. If the stock fails to exceed this threshold, the target
company will pay the difference to Milost in the form of extra stock, and a
penalty of 10 percent to 20 percent of the discount that the share is trading
at over a five-day period, it said.
“The Milost Equity Subscription
Agreement is a growth instrument that creates and builds confidence in the
stock of the companies in which it invests,” the company said. The targeted
company cannot draw down the full committed facility in one tranche and is only
allowed to use it from time to time over a three- to five-year period, with
Milost eyeing a seven- to nine-year horizon for an exit, it said.
Milost is taking a bet on Unity Bank
as the economy of Africa’s largest oil producer shows signs of recovering from
a recession after three straight quarters of expansion in gross domestic
product, which the International Monetary Fund estimates will grow 2.1 percent
Net income at Unity Bank slid almost
54 percent to 2.18 billion naira ($6.1 million) in the 12 months through
December 2016, with assets of 493 billion naira, according to the company’s
latest annual report. Its NPLs stood at 48 percent in 2016, when it reported
its second straight year of negative capital adequacy ratios, the report
showed. The stock has gained 10 percent this year, giving Unity Bank a market
value of 15.8 billion naira.
Nigeria’s banking regulator allows
lenders to count certain classes of debt and equity among the buffers that they
need to set aside to survive market turmoil without causing risk to the
financial system. Capital adequacy ratios across the banking industry worsened
to 11.51 percent in June
from 14.78 percent a year earlier, according to the central bank.
Unity Bank’s shares fell 8.9 percent
to 1.23 naira, its lowest since Jan. 25, amid a global selloff in equities. The
stock has more than doubled over the past six months and is the third-best
performer in the 162-member Nigeria Stock Exchange All Share Index.
The drop in Unity’s share price is
probably linked to concerns that the Nigerian central bank will ease interest
rates, which will make it harder for lenders to generate income by buying
fixed-income securities, according to Omotola Abimbola, a banking analyst at
Lagos-based Afrinvest West Africa. Some investors are also cashing in after the
rally in the stock, he said.
Milost’s interest is positive for
Unity because it will support the company’s capital base, making it possible
for the bank “to be able to grow loans,” Abimbola said. “For an investor to say
they’re putting their money into the bank, it shows they have a turnaround
Milost Global, Inc. operates as a private equity firm.
The Company offers equity finance to privately owned companies through a range
of transaction types, including MBOs, MBIs, LBOs, equity release, expansion
capital, and public-to-private deals.
Plans $1 Billion Investment in Nigerian Bank Bloomberg - 1541941D News