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The Board of the Asset Management Corporation of Nigeria (AMCON)
yesterday swung into business, swiftly rolling out three major policy
decisions.

In its first formal meeting concluded late last night in Abuja,
the board announced that AMCON will value non-performing loans (NPLs) backed by
shares of listed companies at an implied premium of approximately 60 percent on
the 60-day average of recent prices ending November 15th 2010, while those
backed by other perfected collateral would be accepted at the most current
estimate of the loan value supplied by the institution, but for this category,
AMCON put a caveat, “there must be a post-transaction adjustment agreement that
allows AMCON to independently value the loan as of the transaction date of
November 15th 2010.”

According to the corporation, all unsecured loans or loans with
ineligible collateral will be valued at 5 percent of the principal value.

Explaining the underlying assumptions for the valuation, which
it said is solely for the purpose of buying the NPLs and not for
recapitalisation of the banks, the Board said that it could be that “a fair
value ascribed for the purposes of buying the NPLs would be two times book value
and this premium approximates that value.”

Besides, it said the estimate for the valuation must be based on
current market analysis of the collateral and a written guarantee of good faith
by the institution. The valuation methodology, the Board said, has been
consented to by the Minister of Finance, Segun Aganga, the Central Bank of
Nigeria (CBN) governor, Sanusi Lamido Sanusi, and the affected banks.

Reiterating its mission to acquire non-performing loans across
the banking industry, recapitalise the rescued banks, and manage the acquired
assets, the board also announced its approval of the purchase of all the margin
loans in the banking sector and all the non-performing loans of the rescued
banks, totaling in excess of N2.2trillion.

In addition, the board approved a funding model for AMCON, based
on conservative estimates of recovery rates and return on managed assets,
pointing out that with the agreement already reached with the banks to
contribute to a sinking fund, AMCON board is satisfied that the Federal
Government guarantee will not need to be invoked at the end of its expected ten
year life span.

While expressing optimism that AMCON would reach agreements with
the selling institutions regarding pricing of the NPLs by November 15th, 2010,
the Board said AMCON aims to settle these transactions on or before December
30th, 2010, to allow the institutions to obtain the necessary Board and
Shareholders approval, whilst also giving AMCON the time to establish the
necessary operational structures to settle these purchases.

Industry reacts

For Tope Fasua, a Dubai, UAE-based investment management
specialist, taking over bank assets that were secured with equities at 60
percent of original value will, in reality, be more than what those shares are
currently worth, considering that the value of most of the distressed loans
secured with shares declined by over 90 percent.

“Valuing such loans at 60 percent is, therefore, quite
magnanimous. The capital market is likely to receive that news most favourably,
because such shares would generally be growing to the value placed on them by
AMCON. People would naturally buy bank shares, insurance shares, since the
AMCON has put its money on those shares at much above their current values,” he
said.

On loans secured against landed property, Mr. Fasua said the
problem usually associated with it is that because of the nature of valuations
in Nigeria, they are often ‘fictitious’, adding that the value people usually
put on a property is at best mere conjecture.

According to him, a property is only worth N1billion when one is
able to sell such a property and realise the money, notwithstanding what the
estate valuers, rating agencies, bank managers, or even AMCON, says, predicting
that the new policy will create a new market for those who are ‘experts’ at
valuing properties.

“Some will dispute the values already placed on such properties,
while some will reach a ‘compromise’ at the end of the day. AMCON can only find
out if their ‘evaluation’ of a property is wrong and ‘adjust afterwards’, if
and only if, it sells such properties and compares the value received with the
value on paper,” he said, noting that in Nigeria, those scenarios are rackets.