Nigeria Content Online

The stage is set for the revitalisation
of the Nigerian economy with the issuance of bond certificates by the
Asset Management Corporation of Nigeria (AMCON) to 21 banks.

This took place in Lagos last Friday
and signaled the transfer of non performing loans (NPLs) to the asset
company and the issuance of zero coupon bond worth N1.036 trillion to
the banks.

Aliyu Belgore, AMCON chairman, said the
bond has the guarantee of the federal government and the full support
of the executive and legislature.

“We are making history today where many
have failed or not even dared to try. AMCON will help in shoring
confidence in our banking system, reinvigorate the capital market, and
guarantee the soundness of the financial system and Nigeria’s sovereign
credit rating,” Mr. Belgore said.

The bond, which is coming with a yield
of 10.125 percent, is due in 2013. The bond was issued to the eligible
financial institutions for AMCON to acquire the eligible banks assets
comprising almost all the NPLs in the nine intervened banks as well as
margin related NPLs from the non intervened banks.

Swap with tradable bonds

Mofoluke Dosumu, executive director,
finance and operations, said the initial consideration bonds were the
first instruments rolled out to absorb the non performing loans in the
banking system.

“Within the first quarter of 2011, we
will be swapping these with another set of tradable bonds. We will be
issuing more bonds as we buy up more non performing loans, which is up
to N3 trillion in total,” Mrs. Dosunmu said in a telephone interview.

At a parley with bank executives on
December 16, she said that the essence of the intervention is to buy
the non performing loans and to cater for their capital adequacy. She
added that the liquidity of the bonds will be enhanced as it will not
only be held by banks but also fund managers, pension fund
administrators, insurance companies, trustees, and custodians.

On the valuation method, she said the
non performing loans secured without underlying collateral will be
bought at five percent of the principal sum.

“For the listed shares, it will be
valued on a 60 days average on the NSE trading platform counting back
from November 15 with a 60 percent premium on the price,” Mrs. Dosunmu
further said.

She said unlisted assets will not be taken in the first tranche of bonds to be issued.

Giant stride

Director general of the Securities and
Exchange Commission, Arunma Oteh, said the transfer of the NPLs from
the books of the banks will have positive impact on the Nigerian
capital market.

“I look forward to when the bonds will
be tradable. It is a giant stride in addressing the challenges we have
faced over the last two years. The capital market is truly an enabler
of our economy. If we have relied on oil all these years, it is time to
leverage on capital market to build businesses and boost
entrepreneurship skills of Nigerians,” Mrs. Oteh said.

The event was attended by chief
executives officers of 10 banks namely Oceanic Bank, GT Bank, Afribank,
Intercontinental, Spring, Zenith, First Bank, UBA, Union Bank, and
Ecobank. All the other banks were represented apart from Citi, Standard
Chartered, and Stanbic IBTC.

The board members of each bank has
individual and collective responsibilities for the accuracy of the
information provided, especially as regards the valuation of the assets
handed over to AMCON. AMCON will manage these assets and sell off at a
later date to recoup its investment.

In the AMCON law, which is yet to be
made public, the asset company can take over assets of bank debtors
which are not charged as collateral while banks or customers found to
have made false representation on valuation can attract a jail term of
three years or fine of N5 million.