Unity Bank Plc has revealed plans to sell its N400 billion bad loans to new investors to clean up its balance sheet. This new move will facilitate the injection of new cash into the bank.
The sale of the bad loans to a new investor, Frontier Capital Alternative Asset Ltd, will cut the ratio of non-performing loans to near zero from almost 50 percent and help to shore up Unity Bank’s liquidity.
Speaking in Lagos, Chief Financial Officer, Unity Bank, Ebenezer Kolawole, noted that the deal will help the bank sign an agreement with a foreign equity investor that it hopes to finalize during the first half of 2019.
According to Bloomberg, Unity Bank is trying to raise about N270 billion to recapitalize its operations after missing a regulatory deadline last year to bolster the amount of cash it sets aside as a buffer against potential shocks.
“We are on the verge of completing our capitalization, we are raising substantial capital that will block the hole in the bank.”
Frontier Capital Alternative acquired the bad loans after making an initial payment of N6.4 billion to Unity Bank. It recovered N5 billion in the first half of this year while both companies have an agreement to share the recovered funds over the next five years.
Although the bank is yet to release its 2017 financial statements after reporting its second consecutive year of negative Capital Adequacy Ratios CAR in 2016. That year, net income plummeted almost 54 percent to N2.18 billion, with assets of N493 billion.
Previous failed attempt to raise capital
Recall that earlier in the year, the bank had an impressive outlook and was adjudged the best performing stock. This was largely attributed to a rumored $1 billion investment plan by a private equity firm, Milost Global.
However, the deal did not sail through as the private equity firm had to pull out, citing threats from unnamed sources.
Although the bank denied entering into such an agreement, Securities and Exchange Commission (SEC) is currently investigating the deal.
Unity Bank share price are currently traded at N0.74 on the floor of the Nigerian Stock Exchange, with a one-year return of 34.55%.
Alternative Investment Capital Limited operates as a private equity firm. The Company focuses on energy, technology, and life science sectors, as well as offers investment management and advisory services.