Analysis: Look Deeper, It Goes Beyond Arik

Nairametrics| The Asset Management Company Of Nigeria (AMCON) yesterday took over three other companies belonging to Joseph Arumemi Johnson, founder of Arik Air Limited. The companies, Rockson Engineering Limited, Ojemai farms and Ojemai Investments Limited owe a total of N117 billion. AMCON also put Arik’s total debt to Nigerian banks at N387 billion. With these figures, companies owned or controlled by Mr. Arumemi may be among the largest debtors in the country owing almost half a trillion naira.

That the loans were allowed to accumulate to such a level shows poor risk management by the commercial banks and indeed even the Central Bank of Nigeria. The banks should have stopped lending further sums to the firm immediately the debts began to accumulate to the N100 billion mark. The quality of assets used as collateral for the loans are also suspect, as they clearly do not cover the risk. Mr. Arumemi may have taken a personal guarantee for the loans. The CBN, while carrying out its statutory examinations, should have raised a red flag when it saw such a quantum of funds being owed and guaranteed by one individual.

With the present turn of events, he could likely end up as one of the biggest individual debtors in the country. The possibility of either AMCON or the banks recovering a significant portion of the debt is quite low, with the current economic downturn.

Some analysts have stated that Arik’s liabilities outweigh its assets. There would therefore be a need to take a significant haircut on the loans. Adding to already heavy provisions made by banks, the Arik saga shows a poor corporate governance culture that seems to be a constant theme in Nigerian businesses. Both the apex bank and commercial banks in the country need to overhaul their risk departments.