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M&As Progressing; CBN Offers Incentive and Warning Signals




Monday, July 18, 2011 / Vetiva Research
As we countdown to the September 30 ultimatum for the intervened banks’ recapitalization, which informs our upbeat position that all banks will either be “strong” or “late” at this date, positive news flow continue to trickle-in. Thus, we reiterate our position that the Nigerian financial system will consolidate on the steady recovery and stability over the six quarters following the Q3’09 tide. In guarded optimism, we look forward to a “full re-birth” by year-end. Nonetheless, we are still bearish on targets but positive on quoted acquirers at current prices as our view on acquisition terms (which will be made public soon via Scheme of Arrangements), suggest cheap “buys” for acquirers.  
  Selective guarantee extension; an incentive and a warning signal, in our view: Following the signing of TIAs by the three aforementioned intervened lenders last week, the apex bank has extended the interbank guarantee solely for these players by 3-months, till December 2011.
  We believe this forbearance will prevent a “silent run” and probable liquidity challenge for the acquirers (particularly Union Bank which is being acquired by a consortium of private equity firms). More importantly, the selective extension affirms the CBN’s stance to bring recapitalization to close by the September 30 ultimatum as it serves as a warning signal to lagging intervened peers to ramp up M&A talks. Whilst the CBN is clear on its alternative routes in the event of recapitalization failure of any of the intervened banks, we remain upbeat that the systemically important players will scale the hurdle.  
  Diamond Bank leads the pack on Oceanic’s acquisition: Whilst grapevines reveal that ETI West Africa (the parent firm of Ecobank Nigeria Plc) and Helios Private Equity (an emerging market private equity firm) are in talks with Oceanic Bank on possible acquisition/capital injection, Diamond Bank appears to lead the pack of potential acquirers as it initiates due diligence on the target. Though we await a formal MoU, which should be initiated on the “certification” of the books by Diamond Bank, we see possible deal between the duo banks given Diamond Bank’s erstwhile interest in Union Bank and Oceanic’s keen interest at closing a deal prior the ultimatum. As we look forward to clarifying the grey areas on this acquisition from Diamond Bank’s management, we think Actis DB (UK) Holdings Limited (the private equity firm with 14.8% holding in Diamond) may be leading a consortium to deepen their share of the Nigerian banking space.
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Source: ABIOLA RASAQ, Research Division, Vetiva Capital Management Limited, Plot 266B, Kofo Abayomi Street, P. O. Box 73530 Victoria Island, Lagos, NIGERIA, Tel: +234-1-4617521-3, 2700657-8; Fax: +234-1-4617524. Website: 
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