One important story that went somewhat unnoticed in recent times, is the highly successful sale by the Asset Management Corporation of Nigeria (AMCON) of the banks which AMCON had to take over as part of the resolution of the Nigerian banking crisis of 2009/2010.
The corporation recapitalised five of the CBN-intervened banks, creating enabling conditions for subsequent mergers with other banks and/or further capitalisation by financial investors, which also – and very importantly – ensured that no depositors lost any funds.
AMCON also wholly took over three banks, Mainstreet, Enterprise and Keystone Banks- of which it has already successfully been able to sell two (Mainstreet and Enterprise) to Skye Bank and Heritage Banks respectively. This in, and of, itself demonstrates the renewed strength of- and confidence in – the Nigerian banking sector.
By these stabilising actions in the banking sector, AMCON assisted in providing an enabling environment for greater profitability of the banking sector.
By virtue of this increased stability, as well as the concomitant ability of the banking sector to continue to lend to the real sector, this has resulted- all other things being equal- in a larger tax base and higher taxes to the federal government from these institutions. It also means that the banking sector as a whole is better able to withstand shocks to the system than previously.
Highly transparent and competitive AMCON sale process produced premium results
If there is anything that the vast majority of Nigerians have established as having high value and worthy of obtaining at all cost, it is transparency. And that value, AMCON has been able to successfully justify through its processes by which it has sold its shares in the banks that it had to take over fully (namely Mainstreet and Enterprise Bank)- along with sales of other partial stakes that AMCON owned in Union Bank and Ecobank Transnational Incorporated (“ETI”), resulting from it’s bailout of Union Bank and Oceanic Bank (which was acquired by ETI) respectively.
It is interesting to note that AMCON has been able to achieve maximum value for its shareholders, i.e. the Central Bank of Nigeria and the Federal Ministry of Finance (in other words for the Nigerian government and by extension the public), by its handling of the sales of the Mainstreet and Enterprise Bank through transparent, rigorous and competitive bidding processes. These have achieved premium prices. A comparative analysis of sale prices with the average trading value of most banks, as well as the current trading prices demonstrates this effectively.
An analysis using Price to Book Value (P/B) – which is the standard and most commonly used benchmark for Bank valuations- bear this out. It is relevant to note that most publicly quoted Nigerian banks are trading at a Price to Book value of below 1 times Book Value (1 x BV).
Sale of Enterprise Bank and Mainstreet Bank
In the case of the AMCON owned banks that have been sold, the transparent and competitive process first started with Requests for Proposal (“RFPs”) sent out to local and international investment banks and financial advisory firms, in order for them to compete for the mandate of assisting AMCON in selling the banks.
Once advisors had been selected, then the sale processes started with interest shown by 24 parties cutting across local and international bidders. For Enterprise Bank, HBCL Investment Services (HISL) –(a special purpose vehicle set up by Heritage Bank) and Fidelity Bank as preferred and reserve bidders respectively; resulted from a rigorous and competitive bidding process, which was coordinated for AMCON by Citigroup Global Markets Limited and Vetiva Capital Management Limited (Financial Advisers) and G. Elias & Co. (Legal Advisers).
AMCON successfully competed the sale of the entire issued and fully paid up ordinary shares of Enterprise Bank Limited to HBCL Investment Services Limited (HISL) for a consideration of N56 billion. This represented a price of 1.52 times book value (1.52 x BV) – book value at the time of the transaction being N36.874 billion- thus representing the highly competitive nature of the bidding process which meant that bidders had to make very strong bids in order to win. According to a statement signed by Kayode Lambo, head, corporate communications strategy & research of AMCON, the statement said the completion of the transaction follows from the fulfillment of the terms and conditions stated in the share purchase agreement (SPA) executed between AMCON and HISL. The transaction has been approved by the board of directors of AMCON and relevant regulatory approvals have been obtained from the Central Bank of Nigeria (CBN) and the Securities & Exchange Commission (SEC).
“In line with AMCON’s strategic objectives, this transaction marks the divestment of the first of three banks that were acquired by AMCON in August 2011 and represents a landmark transaction in the Nigerian banking sector”, the corporation said at the time.
In a similar fashion, Skye Bank also emerged the preferred bidder for the 100 per cent shares acquisition of Mainstreet Bank, bidding N126 billion for the entire issued and fully paid capital for the nationalised bank, with this acquisition also now having been completed.
Given the book value of Mainstreet Bank at the time of acquisition of N75.5 Billion, this represented a Price to Book Value of approximately 1.67 times Book Value (1.67 x BV) – again representing the highly competitive nature of the bidding process. As previously mentioned, most publicly quoted banks in Nigeria are trading at either around 1 times book value or below.
In his remarks on behalf of Skye Bank, Mr. Timothy Oguntayo, thanked the Board of AMCON, CBN and the Securities and Exchange Commission (SEC) for conducting a transparent process that led to the selection of the bid winners for the bridged banks and for granting all the required clearance and approvals that paved the way for the acquisition and eventual takeover.
Despite the premium price, the shareholders and management of Skye Bank believe that the purchase would result in significant benefits, with the bank saying in a statement said that “The acquisition will avail Skye Bank many benefits, including cost leadership, business optimisation, and greater ability to offer business convenience to its teeming retail and commercial customers with a combined branch network of over 450 across all the states of the federation”.
Sale of Union Bank and ETI stakes
In September 2014, AMCON sold its 20.9% stake in Union Bank of Nigeria Plc (“UBN”) to Atlas Mara, the African investment vehicle of former Barclay’s boss, Bob Diamond. This transaction was the biggest deal to date at the time for Atlas Mara- and lifted its stake in Union Bank of Nigeria (UBN) Plc to almost 30 per cent with an almost $270 million investment. The purchase price was N12 per share, representing a Price to Book value of 1.04 x BV. Union Bank shares are currently trading at around N7.56 per share.
Also in September last year, AMCON sold its 12.5 per cent minority stake in Ecobank Transnational Incorporated (ETI) to Doha-based Qatar National Bank (QNB). The transaction was done through QNB’s purchase of both ordinary and convertible preference shares of Ecobank. QNB bought the shares from AMCON through a transparent public share purchase through the Nigerian Stock Exchange (NSE). QNB bought 1.77 billion Ecobank ordinary shares and 732.3 million preferred shares, valued at N20.01 per ordinary share, and N15.392 per preference share. This represented an approximate Price to Book value of 1.122 x BV.
“Following the transaction, Ecobank is discussing a strategic partnership with QNB, which will enable the two banks to forge business relationships of mutual interest to their respective customers,” it explained at the time. ETI Group Chief Executive Officer, Albert Essien, said: “Ecobank is the bank with the largest footprint in sub-Saharan Africa. This strategic link with QNB, one of the world’s strongest banks, will enhance Ecobank’s reach in North Africa and the Gulf”. ETI ordinary shares are now trading at N20.6/share.
Given the sale prices achieved by AMCON for Enterprise and Mainstreet Bank, as well as the prices achieved for the partial stakes in Union Bank and ETI, it is clear that AMCON has been able to deliver on its mandate of achieving maximum value for the government from these sales by ensuring transparency and fair -but rigorous -competition for the shares.
As mentioned previously, the average trading value of banking stocks on the Nigeria Stock Exchange is less than 1 times book value: whereas AMCON was able to achieve prices of significantly above book value for its 100% sales of Enterprise Banks and Mainstreet (as previous 1.52 x Book Value and 1.67 x Book value). These premium prices were as a result of the highly transparent and competitive sale processes.
In addition, even for the sales of the partial stakes in Union Bank and ETI, AMCON was able to achieve sales of over 1 times Book value (1.04 x BV and 1.12 x BV respectively). This was also a significant achievement as the price for partial minority stakes is usually much lower than the price an acquirer would pay when purchasing a whole institution. This applies not just in banking, but in any typical Merger & Acquisition (M&A) situation- as the buyer is not getting control of the institution/company and thus will not pay what is known as a ‘control premium”. Usually in an M&A process, buyers seek to rather get discounts on the purchases, given their lack of full control over the direction and therefore the financial results of the company/institution. The successful above book value sales of these partial stakes again results from the fact that AMCON negotiated strongly to insist that these stakes be sold above book value.
No doubt, challenges remain and have increased recently, given the current level of oil prices and other macroeconomic issues, but fortunately through the AMCON intervention, Nigeria is in a position where the Nigeria banking sector is better capable than those of many other countries of dealing with these issues. It is important to remain vigilant to ensure that we do not see another banking crisis, given the various macroeconomic headwinds facing the country, but fortunately there is now a stronger infrastructure and a well-demonstrated process for dealing with issues if and when they arise.