Ecobank may issue 6.7 billion shares for $400m convertible bond

People wait in line on February 16, 2011 in front of a branch of the pan-African bank Ecobank in Abidjan. The Ivorian offices of two international banks, French BNP Paribas and US Citibank, were closed of February 14 after the west African regional bank BCEAO warned banks they risked sanctions if they dealt with Laurent Gbagbo's disputed regime. Gbagbo threatened on February 15 to take legal action against foreign banks Citibank and BNP Paribas after they closed their offices in the country. AFP PHOTO / SIA KAMBOU (Photo credit should read SIA KAMBOU/AFP/Getty Images)

Ecobank Transnational Incorporated (ETI) Plc, the pan-African financial services holding company for the Ecobank group, may issue about 6.7 billion ordinary shares under a $400 million convertible bond issue being planned by the company.

Shareholders of ETI earlier this month authorised the board of the financial services group to raise up to $400 million through a convertible bond issue. At the annual general meeting and extraordinary general meeting in Lomé, Togo, shareholders voted in support of the convertible bond issue, which will be undertaken by way of rights issue.

As rights issue, the units will be pre-allotted to shareholders on the basis of their existing shareholdings. As a convertible bond, it means shareholders can exchange the bond unit for other instrument or cash.

Ecobank has now confirmed to correspondent that the convertible bond issue will include equities option that allows unit holders to convert their bonds to equities in a middle-of-the-road debt-to-equity financial structure that has become a regular feature of the pan-African group.

Although the final details of the $400 million convertible bond issue are still being structured, Ecobank has already indicated that the convertible bond issue will have a maturity of five years and a coupon of 6.46 per cent above three-month LIBOR, with an option to convert at an exercise price of 6 US cents during the conversion period. The bonds will be on offer to all Ecobank shareholders on identical terms shortly.

ETI’s share price opens today at 4 cents or ₦13.27 per share at the Nigerian Stock Exchange (NSE). The conversion price for the convertible bond is expected to be about ₦20 per share. If fully converted, the bond issue is expected to add about ₦133 billion to the market capitalisation of ETI at the NSE.

ETI had adopted similar debt-to-equities conversion in its acquisition of Nigerian bank, Oceanic Bank International Plc. Under the deal, preference shares were converted to ordinary shares. Qatar National Bank (QNB), one of ETI’s major shareholders, had used the window to increase its stake in the group.

ETI, which is also listed on the Ghana Stock Exchange in Accra and the West Africa Stock Exchange (BRVM) in Abidjan, will use the net proceeds of the $400 million bond issue to repay the bridging finance required to create a resolution vehicle to manage Ecobank’s legacy loan portfolio and optimise the maturities of the group’s debt portfolio.

The bank had recorded a net loss of ₦52.6 billion in 2016, following a voluntary decision of the financial group to adopt full impairment charge for its legacy loan portfolio. ETI made a provision of ₦221.7 billion in the 2016 audited accounts, an increase of 110.7 per cent on ₦105.2 billion recorded in 2015.

Key extracts of the audited report and accounts of the ETI Group showed 29 per cent increase in operating profit before impairment losses to ₦188.65 billion in 2016 as against ₦146.04 billion in 2015. However, with the decision for the full impairment of the legacy loan, the group recorded loss before tax of ₦33.71 billion in 2016 as against pre-tax profit of ₦40.59 billion in 2015. After taxes, net loss stood at ₦52.6 billion in 2016 compared with net profit of ₦21.25 billion in 2015. Earnings per share thus reversed from 56 kobo in 2015 to a loss of ₦2.58 in 2016.

The report showed that gross earnings rose by 23 per cent to ₦665 billion in 2016 as against ₦542.7 billion in 2015. Net interest income similarly rose by 25.3 per cent to ₦284 billion compared with ₦226.6 billion in 2015.

Meanwhile, the group’s balance sheet emerged stronger as total assets rose by 33 per cent from ₦4.69 trillion in 2015 to ₦6.26 trillion in 2016. Loans and advances also grew by 27 per cent from ₦2.23 trillion to ₦2.82 trillion. Customers’ deposit increased by 26 per cent to ₦4.12 trillion in 2016 as against ₦3.27 trillion in 2015. Total equity improved by seven per cent from ₦502.88 billion in 2015 to ₦538.04 billion in 2016.

ETI Group Chief Executive Officer, Ade Ayeyemi said the funds from the $400 million convertible bond issue will be used sensibly and profitably. $200 million of the issue will be used to repay the short-term financing used in setting up the resolution vehicle while the remaining $200 million will be used for a conscious debt restructure of the maturity profile of the ETI Holdco balance sheet.

He noted that ETI had blazed the trail with the setting up of the resolution vehicle, pointing out that the vehicle is the first private sector-funded resolution vehicle of its kind in Nigeria, with the sole objective of ring-fencing the legacy loans from Nigeria’s core bank.

The resolution of the legacy loan portfolio, he said, would allow management to focus on delivering results, adding that this business philosophy was founded on international best practice in terms of accounting and asset quality.

He pointed out that there is an ongoing focus on cost discipline, stringent credit control and the increasing digitisation of services to enhance the customer experience.

“We are proactively resolving our legacy loan issues, achieving $2 million of recoveries from the resolution vehicle in the first quarter of 2017. I am confident that these positive developments will be reflected in an improving performance from Ecobank going forward,” Ayeyemi said.

Advertisements