How time flies! Last September, Nairametrics ran a feature on Unity Bank, Nigeria’s struggling Tier 2 banks. In the article, we had posited that the bank will need to raise capital urgently to stay afloat. The share price was a paltry 56 kobo and was even overvalued, considering that it had over N237 billion in negative retained earnings as at 2016.
Fast forward to today, Unity Bank is on the cusp of not just raising equity but embarking on a new journey that could make it one of the most formidable banks in the country. The share price is N1.49 and at a return of 181% it is currently the best performing stock on the NSE.
Unity Bank is not alone in this blistering performance. In fact, for the last couple of weeks, we have witnessed the rise of dead beat stocks, which we typically refer to us Zombie Stocks. Skye Bank, another bank that has been in hot water and has since being taken over by the CBN has also recorded significant increase in its share price. Skye Bank has also gained 106% year to date. So what exactly is going on?
Last week, reports emerged in the media that Milost Global, a private equity firm headquartered in New York City, with more than $25 billion in committed capital, is looking at acquiring a “large Nigerian bank following talks with the Central Bank of Nigeria.” The description of the bank in terms of branches and assets leads to none other than Unity Bank.
Milost first came into prominence last year when it announced that it had acquired Primewater View, a Nigerian Real Estate firm for over $1 billion. The company also reported that it signed a deal to inject about $350 million into Japaul, another Zombie Stock (see below) and announced plans to buy one or two Nigerian Banks. Milost also said that it had about N2.6 trillion which it plans to invest in Nigeria.
The beleaguered bank has staged a rally this year largely on the back of an impending acquisition. Despite being in a massive hole thought to be over N400 billion, it appears that the CBN is on the cusp of announcing a deal for the bank.
The CBN is determined not to allow Skye Bank to collapse and promised to continue to inject funds in there this year. Rumours of a potential acquisition is also thought to be driving the share price high, gaining over a 100% this year alone.
This is perhaps one of the most notorious stocks in Nigeria. After luring investors at the height of the stock market bubble in 2008, the company also announced that it had agreed a financing deal worth $350 million with Milost Global. This came as a shock to most investors who are wondering if Japaul’s balance sheet was worth anything close to that amount.
Japaul’s 2017 9 Months results reveals that it has a negative equity of about N24.3 trillion. Its total assets is about N27 billion. One then wonders how they came up with $350 million worth of investments. If this deal pulls through, then it is very likely that Japaul will delist from the Nigerian Stock Exchange.
This is another Zombie Stock that has made big announcements, even though the share price has performed woefully. It is currently second from bottom as the worst performer this year, losing 45% year to date. However, UNIC did announce last year that its shareholders had approved a restructuring of its shares which paved the way for its acquisition by Liberty Mutual last year, leaving its Nigerian shareholders with 25% of the company. The new company is called Unic Diversified Holdings Plc.
The company owned largely by Nigerian General and Politician TY Danjuma announced last November that following its restructuring, a new subsidiary, UDS Farms Limited will be incorporated to run the Agribusiness operations of Union Dicon Salt Plc.
The announcement also revealed Union Dicon former CEO, Chuka Mordi will be the CEO of the new company. This decision is yet to impact on the stock as it has nearly recorded zero transactions this year. However, that it is embarking on a restructuring is perhaps a sign of things to come. It is also hard to bet against TY Danjuma.
What does the rise of the Zombies mean for investors?
Just as it is in the movies, when one Zombie rises more soon follow. The Nigerian stock exchange is full of zombie stocks and at some point we should expect to see massive movements within the flock. The Insurance sector started this movement and it is likely that other sectors will follow this year.
As the Nigerian Economy bounces back, foreign investors will look for cheap assets that they can acquire to give them easy in roads into Africa’s largest market. We expect to see the likes of DAAR Communications, Ikeja Hotel, National Sports Lottery, CWG, Courteville, ABC Transport, FTN Cocoa, Tantalizers make major moves in the fund raising market this year.