Thursday, September 04, 2014 8:06 PM / ARM Securities
The NSE announced that Qatar National Bank SAQ (“QNB”) – the Gulf’s largest bank was acquiring 1,767,612,630 ordinary shares and 732,277,056 preference shares of ETI. Notably the transaction was consummated today with a total volume of 1,767,612,630 units of ETI changing hands at N20.01 in 3 deals in an off market trade – ~10% of ETI shares outstanding. The transaction appears to have been carried out between an institutional ETI shareholder implying no equity dilution.
The Qatar sovereign wealth fund (Qatar Investment Authority) is the largest shareholder in QNB who expects to be a long term holder of the shares in ETI. We think this investment by QNB helps to broaden ETI’s institutional shareholder base which includes the IFC, Nedbank, Old Mutual and AMCON among others and should ensure the adoption of better corporate governance practices.
In line with our note earlier this week “Banks: New Wave of Capital Raising?” where we saw limited possibility for Ecobank to follow the trend of Diamond and Access in tapping domestic equity markets on likely equity injections from Nedbank. During the H1 14 earnings call, management stated that ETI’s capital adequacy ratio (CAR) at the end of Q2 14 stood at 16.1% with Tier I ratio at 13%. Post the IFC equity conversion of its $75m convertible loan on July 1 2014, the Tier I ratio rises to 13.5% whilst following Ecobank Nigeria’s Tier II $250million Eurobond, overall CAR rose to 17.5%.
However as a SIFI bank, ETI would still need to equity injection to meet CBN regulatory requirements. With the QNB transaction, focus shifts to Nedbank’s two options on ETI: the $285million convertible loan and a ‘Top-up’ option which could see their equity stake rise to 20%. At the H1 2014 call management painted two scenarios for ETI’s CAR should Nedbank exercise the two options over H2 2014.
As a standalone, the ETI Nigeria’s Tier I capital ratio stands at 13.3% and should improve to 16.5% if Nedbank exercises its top-up options which management estimates at $206million. We will be engaging with ETI management in the coming days on developments around its Nigerian subsidiary’s CAR. Currently we have a BUY rating on ETI with a TP of