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Financial Services

Zenith Bank clears air, denies binding offer to acquire any bank

Zenith Bank Plc has cleared the air that it has no binding offer to acquire any financial institution.

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Zenith Bank GMD Ebenezer Onyeagwu, Central Bank of Nigeria, CBN's loan-to-deposit ratio policy, Nigerian Stock Exchange NSE stocks, Banks in Nigeria, Deposit Money Banks in Nigeria, Zenith Bank announces close period ahead of Q3 2019 results, Zenith Bank collaborates with fintechs, but insists it is not scared to compete with them, Zenith Bank Profit before Tax rises by 2.6% to N58.7 billion in Q1 2020

Zenith Bank Plc has cleared the air that it has no binding offer to acquire any financial institution. The bank disclosed this in a statement it issued to the Nigerian Stock Exchange on Tuesday.

The statement signed by the Company Secretary of the bank, Michael Otu, read, “Zenith Bank notes certain recent internet and social media reports suggesting a proposed acquisition of Union Bank Plc by Zenith Bank. We hereby state categorically that Zenith Bank has not made any binding offer to acquire any financial institution.”

Meanwhile, Nairametrics had reported that Zenith Bank Plc has been given the green light to merge or acquire Union Bank Nigeria Plc. The leading financial news platform got wind of this from a reliable source. We understand talks are currently ongoing between the banks and a tentative arrangement may have been reached to commence due diligence.

Zenith Bank is Nigeria’s largest bank by profits and second by total assets and could increase its size significantly further with a potential acquisition or merger of this magnitude.

Sources from both banks denied any merger plans have been concluded but will not deny or affirm if talks are ongoing. Sources also inform Nairametrics that some executives of both banks are not favourably disposed to a merger while others are. Any merger between the banks will surely require the blessing of Jim Ovia, the Chairman and Founder of Zenith Bank, and we now also understand no decision has been made. One of our other sources also claims that he denied any such deal.

We did not expect an affirmation of a deal at this stage. Nairametrics also got a similar response when it contacted sources in First Bank for the reported merger with Polaris Bank and Heritage Bank.

But is it true there are no merger talks: In 2018 Access Bank and Diamond Bank also denied any merger plans when we reached out to them when the initial merger news broke. Both banks eventually announced a deal and consummated a merger in December 2018. Deals like these are typically not confirmed until the clearance is obtained from the Securities and Exchange Commission.

Why the merger: It is not immediately clear why both banks will be considering a merger, however, Union Bank owners Atlas Mara with a 49% stake has been under pressure to exit their African holdings. Last year (February), Atlas Mara co-founder Bob Diamond announced he was resigning his post as Chairman of the company. The company said it was looking at selling off banking assets in countries where it was not the dominant player.

READ MORE: CBN says Nigerian banks’ assets and liabilities are now at N41.42 trillion

Earlier in January, Union Bank sold its United Kingdom subsidiary to MBU Capital Limited. The London-based management investment firm acquired Union Bank UK after emerging as the most preferred bidder. According to the bank, “This sale is aligned with Union Bank’s strategy to geographically streamline its business operations to focus on growth opportunities in Nigeria.”

Union Bank also recently raised N20 billion in series 3&4 commercial paper after successfully raising N24.3 billion through the issuance of the Series 1 and 2 of its N100 billion commercial paper programme.

Why Zenith: We believe for Zenith Bank a potential merger could be for two main reasons. Firstly, a merger firmly solidifies Zenith Bank’s position as the largest bank by total assets after falling second to Access Bank with N7.1 trillion. It also gives Zenith Bank control over several juicy assets and right of ways owned by Union Bank from its legacy years.

Abiola has spent about 14 years in journalism. His career has covered some top local print media like TELL Magazine, Broad Street Journal, The Point Newspaper.The Bloomberg MEI alumni has interviewed some of the most influential figures of the IMF, G-20 Summit, Pre-G20 Central Bank Governors and Finance Ministers, Critical Communication World Conference.The multiple award winner is variously trained in business and markets journalism at Lagos Business School, and Pan-Atlantic University. You may contact him via email - [email protected]

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    Financial Services

    How to invest in Nigerian Eurobonds

    Before investing in Eurobonds, weigh the bond’s risk characteristics and set them against the interest rate to know if it is worth it.

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    Treasury Market T-bills, African Finance Corp. issues $750 million 7-year Eurobond at lowest yield to date

    As of 2019, Nigeria’s Eurobonds were regarded as one of the top 5 best-performing Eurobonds in the world.

    Although Nigeria’s Eurobonds remain one of the most profitable in the investment world, not many individuals know how to invest in them. The Federal Government and a number of corporate organisations in the country subscribe to Eurobonds and issue them quite often, lending credence to their attractiveness as an investment tool.

    What is Eurobond?

    Basically, Eurobonds are financial instruments issued by a country or corporate organisation in a currency different from the currency of the issuer.

    Nigeria typically issues Eurobond instruments denominated in US dollars. For example, the 6.75% $500 million January 2021 Eurobond was denominated in US dollars.

    There is the sovereign, which is referred to as a government bond, and the corporate bond. Eurobonds operate like fixed income securities in terms of bond instruments. It has a coupon, an interest rate paid on bonds (which is paid bi-annually), a price at which the bond will be purchased, and also a yield.

    The price and yield have an inverse relationship meaning that when the price goes up, the yield comes down. When the yield is coming down, the instrument is trading at a premium compared to when it was issued.

    An investor can buy Eurobonds while the primary auction is ongoing or later, at the secondary market, for those who were unable to participate in the primary auction.

    READ: Nigeria’s Eurobond yield hit 12.8% as investors flee emerging markets

    How to invest in Nigerian Eurobonds

    The process of investing in Eurobonds in Nigeria is not any different from that of investing in local bonds. Both bonds can be bought from either the primary market at the initial offer level or at the secondary market for existing bonds.

    All that is required is for the investor to complete the tender for the Federal Government of Nigeria or corporate bonds form, submit the tender through any of the authorized dealers and make the required payment when the bid is successful.

    Basically, for banks, your account has to be funded with the desired currency. For instance, to buy a dollar-denominated Eurobond which is the conventional one issued in Nigeria, you have to fund your account with dollars, then send an instruction for the bond purchase.

    READ: FG redeems $500 million Eurobond

    Be mindful of the bond’s risk profile before investing

    Eurobonds can either be corporate or government bonds. Corporate bonds may offer higher interest rates than government-issued Eurobonds but they also come with higher risk.

    If you want to invest in Eurobonds, ensure that you weigh the risk characteristics of the bonds and set them against the interest rate to know if it is worth it. Most Eurobonds come with credit ratings, which serve as a measure of their quality and risk profile.

    Usually, bonds with the highest quality credit ratings come with the lowest yields while bonds with lower credit ratings offer higher yields. The yield, in this sense, is a measure of the bond issuer’s creditworthiness meaning that the greater the credit risk on an investment, the higher the yield investors would demand to compensate for it.

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    READ: Investing in Nigerian Bonds – A Beginners Guide

    How to obtain an FG Eurobond

    When bonds are issued at the primary market, the issuance document contains a list of the banks or brokers that have been authorized to sell the bonds. The FGN issued bonds are purchased through the Primary Dealer Market Makers (PDMMs). These are banks appointed by the Debt Management Office (DMO), to act as authorized dealers of FGN bonds.

    Can you fund a Eurobond with a naira account?

    Not at the moment! You need a dollar account (domiciliary account) that is funded but your bank can easily guide you on how to obtain one.

    Next is to fill out instruction documents after which the bank will send you a market price and the expected yield. The bank then debits your account for the purchase. Every six months or on the specified coupon dates, you will receive your coupon and at maturity, you will get your principal back if the issuer does not default. A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from the issue date until maturity.

    READ: How to read stock market tables

    Here is a simplified example of the process:

    You walk into a branch of your bank and ask to purchase $100,000 worth of Eurobonds. Note that your domiciliary account should already be funded with the amount. You would be required to fill out and sign the letter of instruction which would then be sent to the bank’s treasury unit for processing. The treasury unit responds with the available Eurobond prices and requests you to confirm the purchase. When that is done, the treasury unit executes the deal and holds it in their custody.

    You can also sell the bonds at the secondary market.

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    Minimum investment as an individual

    The minimum conventional investment tranche is $200,000, but a $100,000 worth of investment is also permissible. Amounts lower than this are however problematic because the secondary market trades in tranches of $200,000.

    READ: Your “beard gang” is affecting the valuation of this global firm

    Can people invest through mutual funds?

    Basically, what mutual funds do is amass investors’ funds and buy Eurobonds in the secondary market. A mutual fund is just like a vehicle that helps you to buy bonds so that you are not faced with the issuer’s risk directly. Therefore, individuals or institutions can also buy Eurobonds through mutual funds.

    Mutual funds make it possible for you to participate in bond-buying with less than the statutory amount since they operate by pooling resources together from a large number of investors.

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    Financial Services

    Ratings agency, Moody’s reveals it is reviewing First Bank’s ratings

    Moody’s explained why it might downgrade First Bank’s ratings.

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    Moody’s Ratings agency said on Thursday that it has put First Bank of Nigeria on review for a downgrade after the central bank sacked the board of directors and replaced them with new directors.

    Moody’s made this statement in a report titled ‘Removal of Non-Executive Board Members Highlights Governance Shortcomings.’

    In a quote, Moody’s said:

    “Moody’s Investors Service, (“Moody’s”) has today placed all long-term ratings and assessments of First Bank of Nigeria Limited (First Bank) on review for downgrade. The review will focus primarily on an assessment of evolving governance considerations at First Bank, specifically corporate governance developments. The rating action follows the dissolution of First Bank’s board by the Central Bank of Nigeria (CBN), the bank’s primary regulator, on 29 April 2021. As a result of this action by the CBN, all the non-executive directors were removed while the executive management remained in place.”

    The Governor of the Central Bank of Nigeria, Godwin Emefiele, had last week announced the sack of the entire board of directors of FBN Holdings Plc and its subsidiary, First Bank of Nigeria Ltd following the initial removal of its MD/CEO Dr Sola Adeduntan. Following his sacking of the board, he set up a new board for the bank holding company and its subsidiary and also reinstated Adeduntan as MD/CEO.

    Moody’s mentioned that the regulatory actions demanded of First Bank by the CBN introduces a clould of uncertainty over the outlook of the bank. For example, the CBN had asked the bank to divest from its holdings in two listed companies while also recovering its loans from one of them.

    “The review for possible downgrade reflects the rating agency’s view that the removal of all non-executive directors of the bank’s board by the regulator demonstrates corporate governance shortcomings and weaknesses in board oversight. The bank also needs to implement regulatory directives concerning the resolutions of loans to, and shareholding in non-banking related parties, which reportedly had not been executed in the recent past.

    Moody’s notes that the outcomes of these developments are uncertain at this point, and the final and long-term governance, reputational and financial implications of the events for First Bank are also unclear.”

    The central bank directive sacking the board of the bank also retained its executive management perhaps suggesting that the CBN had confidence in the ability of the MD and his team to manage the bank. Moody’s also noted this in its briefing.

    “While the bank’s executive management team remained the same, the rating agency believes these developments could distract management’s focus on implementing the bank’s strategic plan and road to recovery. First Bank management’s immediate key target was to reduce nonperforming loans (NPLs) to levels comparable with domestic peers. The rating agency recognises that, in the context of asset risks, the bank took steps to reduce its stock of problem loans, with its reported NPL ratio falling to 7.7% at year-end 2020 from 25.9% in 2018.”

    Will Moody’s downgrade First Bank?

    The rating agency explained that the decision to downgrade will depend on how strong the bank’s corporate governance structure is and whether the CBN will impose additional sanctions. If any of these crystallizes, it could downgrade its ratings.

    “The bank’s long-term deposit ratings can be downgraded if flaws in the bank’s governance systems exist, and if the CBN imposes additional sanctions on the bank, including, but not limited to, conditions to address any vulnerabilities that may be discovered. Financial output that is less than anticipated could also result in a rating downgrade.”

    Moody’s, however, poured water on any optimism around a rating upgrade.

    Given the review for downgrade and the pessimistic outlook on the government of Nigeria, there is a slim chance that First Bank’s ratings will be upgraded. Stronger solvency progress than currently reflected in the ratings, combined with a stabilization of the sovereign outlook, could result in the outlook being stabilized.

    Why is rating important?

    Corporate Organizations desire positive ratings because of the effect it has on their ability to raise capital as well as the cost of capital. A high credit rating typically attracts positive investor sentiments helping organizations tap the debt and equity markets, especially from institutional investors.

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