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Interview with William Wallace on Nigeria’s $500 million
Eurobond issue: Excerpts:

We understand that the
bond has been over subscribed to the tune of about $1 billion despite the
gloomy picture painted by some of the investors you interviewed. What do you
think is responsible for this level of confidence?

Firstly there is a lot of investor interest in Africa generally,
given that some of the world’s fastest growing economies are on the continent,
which looks set to grow in coming years at double or more what the developed
world is. Then there is a lack of supply of African sovereign debt. Nigeria as
the second largest economy is obviously going to attract interest.

When weighing up the risks involved, some funds will look at the
country’s long term prospects, its huge natural resources, the size of the
market, and the dynamism of parts of the private sector. They might also take a
favourable view of recent banking and stock market reforms. A look at the
current macro-economic fundamentals does not look too worrying either, when
compared to some African peers.

Others, seemingly a minority, looked more closely at the
country’s deteriorating fiscal position, and worried about big unanswered
questions about how billions of dollars of windfall oil revenues have been
used. You would not normally, for example, expect foreign reserves to be going
down, and oil savings to be depleted, while debt levels are rising too, all in
a year when oil production has recovered and prices are soaring. These more
skeptical investors concluded, so they say, that the general direction of
economic management looks worrying and the risks are too high.

The finance minister says
big investment names from 18 different countries subscribed. We talked to four
major international funds who were put off but there may have been more.

You seem to be saying that some investors are prepared to
overlook some important indicators like macroeconomic management or in this
case mismanagement? Why would that be the case, surely risk assessment is part
of the whole process?

They may for example decide that any mismanagement is connected
to the election process, in other words is short term and decide that fiscal
prudence again will improve after April. Nigeria’s debt profile is still far
more favourable than it was a few years ago even if both domestic and external
debts have been on the rise again. They may also decide that even with
mismanagement, Nigeria’s oil revenues are such, with the price of oil rising,
that over the 10 year period the country will always be able to pay.

We understand that the
bonds are going at 7 % interest rate; do you think this is about right?

It is within the range of what investors and analysts expected.
Some of them suggested that worries about macro-economic management are
factored into the price.

And yet neighbouring
Ghana with no gas reserves, no oil reserves and a smaller population went to
the international market and got 6 percent, is it all about perception?

It is about perception and Ghana despite some real concerns
about a massive fiscal expansion in 2008 ahead of elections, is generally
perceived to be better run. But Ghana went to the market three years ago. It is
not sure that it would get the same price today.

The main aim of this fund
according to the finance minister is not primarily to raise funds but establish
a benchmark yield curve for the country. Do you think he will be pleased with
the outcome?

He seems pleased. The bond was oversold despite some of the
concerns we drew attention to in our story. It prices Nigerian debt at a level
which should facilitate corporate access to international markets. That was the
intention.

Would you consider this a
grand debut at the international market for Nigeria?

It certainly seems to have gone well from the government’s point
of view. I think it would have gone better still if there were fewer questions
about how government has been spending windfall oil revenues.

Is it just political
risks then that make this country a bit dicey or are there other factors?

Given the history of mismanagement of oil revenues, and
especially windfall revenues above the budgeted price of oil, I think there is
always a danger that Nigeria is going to squander the opportunity provided by
an oil boom, and then regret it later at times when oil prices fall. Questions
about the way the ECA has been used for most of the past four years show that
Nigeria has not yet solved this problem. The sovereign wealth fund that is
planned could maybe be an answer.

What is your honest
assessment of the Nigerian economy?

It could be doing so much better. There are so many dynamic
talented people in the country. But they are held back by infrastructure
constraints, and poor management of the resources the country has. Simply
providing power which so far every government has failed to do, could be
transformative.

William Wallace is the
Africa Editor, Financial Times

Investors in the
transmission grid of the power sector may receive support from a bond
to be issued by the federal government to guarantee their investment.

Bart Nnaji, special adviser to the president on power and chairman of
the presidential task force on power (PTFP) who said this at the power
investors’ conference organised by the Bureau for Public Enterprises
(BPE) in Lagos said the fund would take care of any apprehension by
investors.

“For transmission,
there will be a decline in investment but that decline will not be as
significant as you may think. Federal government still has to continue
to make investment but there will be largely private public sector.
There should be a fund established to deal with this. A kind of PPP
Fund and there will be an investment company to handle it.”

He said government
is leaving no one in doubt about its determination to attract private
sector investment in the power sector. “Government has decided it wants
to solve the problem in one go by looking at the entire value chain
from fuel supply, generation, transmission and distribution.”

He explained that
the idea is to enhance efficiency across all segment of the power
sector. “Our goal is to cut out corruption areas because distribution
is the headquarters of corruption.”

Abimbola Agboluaje,
head media and communications of the task force, said government will
opt for the concessioning of the transmission grid instead of outright
privatisation. This is to ensure that investments in other sectors of
the power chain are complemented.

“If transmission
grid is not strong enough to evacuate all the power that will be
generated, it may just be a waste of money. So the transmission fund is
to ensure enough fund is available for investment in the transmission
aspect of the sector.” He said such an arrangement may be funded
through a bond issuance.

Bolanle Onagoruwa,
director general of the BPE said privatisation and liberalisation of
the power sector is a key component of the power sector reforms. She
said the Nigeria Electricity Liability Management Company has been set
up to manage stranded liabilities, pension liabilities and other
liabilities of the Power Holding Company (PHCN) “The BPE has also
incorporated the Nigerian Bulk electricity Trading Company which is
saddled with the responsibility of bulk procurement and sale of power
in the sector and thus alleviate the fears of prospective power
investors.”

She said government
is seeking investors in 11 distribution companies, four thermal
stations, and two hydro stations. “The privatisation of the power
utilities is unique and different from previous privatisation
programmes in the country in that it is driven by the need for
efficiency and investment rather than optimization of proceeds to
government.”

The 11 distribution
companies are located in Abuja, Benin, Enugu, Eko, Ibadan, Ikeja, and
Port Harcourt, Jos, Kaduna, Kano, and Yola. The thermal power stations
are Ughelli Power Plc and Sapele Power Plc both in Delta State, Afam
Power Plc, in Rivers state and Geregu Power Plc in Kogi State, while
the hydro power companies, for which concessionaires are sought, are
Kainji Power Plc comprising power stations in Niger and Kwara States
and Shiroro Power Plc, also in Niger State.

The Association of Stockbroking Houses of Nigeria (ASHON) has
appealed to the management of the Nigerian Stock exchange (NSE) over the
suspension of its members.

The Exchange had on Tuesday suspended 60 stockbroking firms
following their refusal to meet the minimum capital base of N70 million
stipulated by the Securities and Exchange Commission (SEC), capital market
regulator.

Ola Yussuff, chairman of ASHON, said the Association is
appealing to the authority of the NSE to give more time to the suspended
stockbroking firms for them to recapitalise.

Mr. Yussuff, who is also the chief executive officer of Trust
Yield Securities Limited, a stockbroking firm that was not affected, said, “In
the interest of the market, we are asking for more time to begin the process.
Even if you ask people to go and recapitalize, they have to look for investors
within the same market. And we all know that investors right now have not
gained full confidence in the market because of past financial crisis. But now
that the market has started showing signs of rebound, let the Exchange give
more time so that investors’ confidence can be fully regained in the market and
affected stockbrokerage firms can also appeal to their investors to invest in
the companies.”

He said the suspended firms are in such situation today because
of the market crisis which started over two year ago and the provisioning which
some of them have been providing for. “So if investors’ monies have not been
lost in those years and we are just few months away from resolving market
crisis through government’s intervention in the banking sector which will also
help the market, why should recapitalisation for brokerages now be the issue?”
Mr. Yussuff said.

He said many brokerage companies have being managing the
situation even before the Asset Management Corporation of Nigeria (AMCON) was
formed and no investors’ funds were lost. “Now that we have an institution like
AMCON that is doing something; though it might not solve all the problems, but
if we all agree that AMCON is going to have positive effect, why don’t we allow
them to finish what they are doing in the next few months?” he added.

Mr. Yussuff said, “We are not saying what the authority is doing
is wrong because no matter the market, no company should operate on a negative
capital; you need to have a remedial plan.

What the association is saying is thank you to the NSE for been
compassionate up to this time, but it should only consider punishing those
affected brokerages when AMCON finish its process and the firms still cannot
survive the positive effect of AMCON.” ‘Highest in the world’ Another
stockbroker whose company was not affected, David Adonri, chief executive
officer of Lambert Trust and Securities Company Limited, said with the minimum
capital base of N70 million required by SEC, Nigerian stockbrokerages would
probably be the highest in the world.

Mr. Adonri said, “In India, the fourth largest economy, the
maximum capital for stockbroking firm is equivalent to N2 million. Some other
stock Exchanges even require less than that from stockbrokerages. So the
initial N20 million require in Nigeria is even over capitalisation.” He said
stockbrokers are still trying to make the Exchange understand that
stockbrokerages don’t even need such capitalisation to operate.

Meanwhile, Wole Tokede, spokesperson for the NSE, said though
the Exchange share the pains of the affected members, “as regulator we still
have to do our job by protecting investors’ interest.” Mr. Tokede said, “It is
painful.

It is not a situation to celebrate because it will affect
trading performance.

But the main thing is that investors’ interest should be
protected.” he said that although there is no specific deadline yet given for
the stockbroking firms to meet the capitalisation requirement, but there may be
one very soon.

He said, “Once the affected firms meet the capitalisation
requirement, we clear them immediately. I can confirm that the three companies
that met the requirement yesterday (Tuesday) were cleared today (Wednesday).”
For clients of the affected companies that may not meet the capitalisation
requirement, he said, “It is not a big deal. Clients can always change
brokerage houses.”

He however said investors should not panic because the NSE only
suspended the companies and has not revoked their licenses.

The Central Bank of Nigeria (CBN) and Nigerian Accounting
Standards Board (NASB) are at loggerheads over general provisioning by banks
for their December 2010 results.

The crux of the dispute is based on whether the general
provisioning of banks should be observed for the banks’ 2010 results or
suspended due to the huge provisioning the banks have made in the last two
years.

General provisioning was one per cent of performing loans while
a two per cent controversy came up when the Central Bank released the first
revised version of the Prudential Guidelines, which the banks argued against
and was subsequently dropped in the final one.

Following the Central Bank special audit in 2009 and the
resultant spike in provisioning numbers across the banking sector, the Central
Bank made a request to the NASB Governing Council that general provisioning be
suspended for banks’ December 2009 results, which the Council approved.

In mid-2010, the Central Bank published revised Prudential
Guidelines, effective 1 July 2010, in which it outlined its plan to replace
general provisioning with dynamic provisioning, stating that it would issue
guidelines on general provisioning from time to time as a counter-cyclical
measure.

On Monday 10 January, the Central Bank sent a circular to banks
confirming that general provisioning would remain suspended for the December
2010 results.

However, the following day, NASB announced in a newspaper that
the suspension it granted was only for the December 2009 results, and that
banks must follow the accounting standards by making the required one per cent
general provisioning on performing loans, or risk administrative, civil or
criminal sanctions.

No war

NASB officials said on Monday that they would not comment
formally on the matter. A senior staff, however, said, “There is no
logger-heads; we are organisations that work together. They are members of our
board. Whatever it is we are doing, it’s not as if we want to fight and say no
to what they say.

“We know how we communicate. It is an accounting standard issue.
If for any reason the banks have an issue with that, they can come here and
consult with us; they usually do,” he said.

Mohammed Abdullahi, the Central Bank’s spokesperson, did not
respond to calls or texts to confirm if the issue has been resolved.

Meanwhile, finance experts say the Central Bank and the National
Accounting Standard Board should address the issue for industry clarity and
investment decisions, adding that the enforcement of the general provisions for
2010 will be negative for the banking sector.

“The successful enforcement by the NASB of general provisions
for 2010 will be negative for the banking sector, as we understand that all but
one international non-listed bank wrote back these provisions in their December
2009 results,” Renaissance Capital, an investment bank, said in a report issued
last Friday.

“This looks to be an impasse, but we feel there are two possible
scenarios that may arise: the stalemate remains for so long that the banks and
auditors will be at liberty to treat the accounts as they please, skewing them
towards compliance with the NASB,” while the second is that “The Central Bank
reaches an agreement with the NASB Governing Council on the issue following
which the NASB, which is the sole authority on accounting standards in Nigeria,
stands down.”

Research and Marketing Services (RMS), a leading marketing
research company not only in Nigeria but also within the West Africa region,
recently released a survey tagged ‘Pulse of the Nation’, which reflected the
opinions and views of Nigerians on socio- economic and political issues.

The survey is an eye opener as it revealed the desires of the
people with specific regards to governance, citizen empowerment, elections, and
leadership. It is one survey that reflects the wishes of the people for a
government to focus on delivering value to the citizenry.

The importance of such perception surveys cannot be
underestimated, especially in an environment such as ours. The survey comes as
a critical reference point in this column due to the recent decision of
government to close schools for over three weeks because of voter registration
exercise.

Even though RMS is a private entity, I think government
parastatals saddled with information and civic orientation should, on a
consistent basis, engage in public perception research to touch base with the
citizens. The recent uproar resulting from the schools’ closure bears testimony
to the fact that we do not have a listening government. A key ingredient of the
re- branding campaign is the desired need to re-tool government machinery to be
more virile and responsive to the needs of the citizens.

I find this a very commendable effort because perception is a
key and Nigerians are living up to their civic responsibilities. Some other
bodies like a group of educators went to meet the education minister while
others utilised media to publish their grievances.

It thus becomes crucial for Nigerians to embrace every channel
of communication to make their opinion and perception count on key government
policies. The media also has a critical role to play in ensuring that the
public perception and views on key issues of national discourse are given
prominent attention. The same was accorded the public outcry that greeted the
legislators pay.

Public perception should not also be taken with levity, as it
constitutes a groundswell of public opinion on issue. Gauging public perception
on a consistent basis helps in moulding and reshaping government policies for
better impact. Public perception helps the government to perform better and
focus on key parameters to provide good governance.

It thus becomes essential for government to embark on public
perception survey to assess people’s response to government policies and
initiatives. This is due to its effectiveness in evaluating the thought pattern
of the people as it enables government to focus on areas that can improve the
lot of the entire citizenry.

It has become expedient for government to attach high importance
to public perception.

This sounds strange in our clime and it should not be so. It is
high time the government do away with unpopular policies.

There should be a sustainable and consistent process to gather
opinions, feelings and views of the people. When the government fails to do
this, it meets with resistance from the people and thus reverses unpopular
decisions.

This is also a clarion call to Nigerians to shed all garments of
docility when it comes to public issues. We should also make our opinion count
and let the government listen when we talk.

Ayopo, a communication
strategist and public relations practitioner, is the chief executive of
Shortlist Limited.

Investors at the Nigerian Stock Exchange (NSE) on Thursday
recorded additional gains on their equities’ value, as market closed trading on
a positive note.

The Exchange market capitalisation of the 201 First-Tier
equities closed yesterday at N8.630 trillion after opening the day at N8.471
trillion, reflecting 1.87 per cent upturn or over N159 billion gains. The
market had gained N120 billion at the close of trading session on Wednesday.

Meanwhile, market watchers said the current political concerns
should not affect investors’ sentiment in the market.

Analysts at Renaissance Capital, an investment bank, said the
stock market will be resilient during the political period.

“In the past, the NSE’s performance has been resilient to
significant political and security events. Notable political events, including
the hand-over from military to civilian rule in 1999 and the first civilian
elections in 2003, did not mar the performance of the NSE.

“We believe that concerns over the political landscape have been
slightly exaggerated and may present buying opportunities,” they said.

Instead, they further said, there are great opportunities “in
all the major sectors of the NSE, including banking, consumer and building
materials and agriculture.”

High gainers

At the close of trading on Thursday, the number of gainers
closed higher at 52 stocks as against the 47 gainers recorded previous session;
while losers also closed higher at 23 stocks when compared with the 21 losers
recorded on Wednesday.

Nigerian Breweries and Dangote Cement topped the price gainers’
table with an increase of N4.14 and N3.52 respectively to close at N87.08 and
N130.02 per share. Oando Oil and Flour Mill followed in the chart with an
increase of N3.22 and N2.00, to close at N76.26 and N74.00 per share.

On the losers’ side, Total Nigeria and Nigerian Aviation
Handling Company led the price losers’ chart with a decline of N2.00 and 21
kobo, to close at N232.00 and N10.79 per share respectively. Vono Products and
Nampak Nigeria followed with a decline of 17 kobo each to close at the N3.32
and N3.85 per share.

Active subsector

The Banking subsector led the market transaction volume on
Thursday with 411.524 million units valued at N3.817 billion, as against the
492.883 million units valued at N4.706 billion recorded on Wednesday. The
volume recorded in the subsector was driven by transaction in the shares of
Zenith Bank, First Bank, Afribank, Finbank, and Oceanic Bank.

The Mortgage Companies subsector followed in the chart with
44.317 million shares worth N23.666 million. Resort Savings & Loans largely
boosted the subsector’s volume, followed by Union Homes Savings & Loans and
Aso Savings & Loans.

Trading activities in the Foreign Listings subsector was third
highest yesterday, with 34.441 million shares valued at N549.619 million.

Volume in the subsector was boosted by deals in shares of
Ecobank Transnational Incorporation, the only traded stock in the subsector
yesterday.

Union Bank has announced the ban of its senior staff
association. This is the aftermath of the December 15, 2010 industrial action
which crippled operations nationwide for about three days.

The bank made this known in a terse press statement release
yesterday in Lagos captioned, ‘Withdrawal of recognition of Union Bank
Association of Senior Staff (UBASS), Association of Senior Staff of Banks,
Insurance and Financial Institutions (NLC Affiliate) (ASSBIFI).’

“Following the unlawful operations of UBASS and ASSBIFI, Union
Bank of Nigeria Plc has withdrawn its recognition of the above named trade
union bodies with immediate effect. All concerned have been duly advised. The
general public should please take note,” the statement read.

The other union, National Union of Banks, Insurance and
Financial Institutions Employees (NUBIFIE), was, however, not affected by the
proscription.

Collective agreement

The 94-year old financial institution, with a workforce of over
8,000, said it will take disciplinary action against any staff that has been
found to breach the terms of their employment.

“Some staff were found to be exposing false and confidential
customer information to the public, including shareholders. In the collective
agreement, it is stated there, the dos and don’ts of members. When there is no
rule, everybody becomes lawless. We will do the proper thing. We will not
victimise anybody,” Mrs. Osibodu said, adding that 315 staff were promoted in
December, 300 staff are facing disciplinary action for various infractions,
while some have received commendation.

However, ASSBIFI, in its response, said the bank has no
constitutional basis for withdrawing recognition of the union. Its response
letter, signed by the national president, Princewill Ojeh, and secretary
general, Obukese Orere, stated that the issue of withdrawal of recognition is
null and void.

“Recognition of Trade Unions by various managements is
compulsory and automatic and not a choice or wish. Trade Unions Act No 22
chapter 437, third schedule part B (7) of 1978 as amended refers.”

According to ASSBIFI, membership of unions is guaranteed by
Section 40, 1999 Constitution on freedom of association.

“No organisation has a unilateral power to withdraw recognition
from a trade union registered under the Trade Union Act,” and urged the bank to
withdraw the proscription letter.

Union Bank gets N239b
AMCON funds

Union Bank said it has received N239 billion from the Asset
Management Corporation of Nigeria (AMCON) for the purchase of its non
performing loans in the first phase of bailout.

This is in addition to N120 billion capital injection received
from the Central Bank of Nigeria (CBN) when it intervened in 2009 following the
sack of the former managing director.

Group managing director, Funke Osibodu, at a briefing in Lagos
yesterday, said the funds may not be the final intervention as the bank would
conclude reconciliation of its accounts in the next one week. She said the bank
had a negative capital of N254 billion and would still need about N154 billion
to move up to ground zero, after which a core investor can come in.

“This N154 billion will be covered by they (AMCON) taking equity
in the bank to that level. We place this at the table, on the terms of the
equity with AMCON, they provide the money they become the shareholder
technically and then we are now at ground zero,” Mrs. Osibodu said.

She said at this point, a new core investor can come in. “The
minimum capital that may be required is N100 billion for an institution of our
size.”

She further said the bank was already talking to new core
investors. “We have a preferred core investor and we have a standby core
investor. Out of all that have indicated interest, we have narrowed down to
two. We still have to negotiate the broad terms of engagement.”

Some
of the rescued banks are silent on how far they have gone with their
recapitalisation effort and the fate of their subsidiaries, especially
those outside the country.

Oceanic
Bank, one of the banks closed down its outlet in The Gambia last week,
citing inability to meet the capital requirements of 150 million dalasi
(about US$ 5.6 million) demanded by that country’s authorities. Thomas
Quayson, the bank’s spokesperson in the country, said that the bank
headquarters in Nigeria could no longer subsidise its foreign branches,
and as a result are returning deposited money to customers.

At
the bank headquarters in Nigeria, staff refused to talk about the
issue. “All we can say now is that we have opted to go from
international banking to national” a source said. “Details of what will
happen to our subsidiaries cannot be given now until the whole process
is over, right now, it is still a work in progress” he added.

Following
the sale of some non-performing loan portfolio to the Asset Management
Corporation of Nigeria (AMCON) and receipt of bonds worth over N200
billion in exchange, John Aboh, the bank chief executive, said it is
now operating with an enhanced liquidity ratio that is above the 25 per
cent level required by the Central Bank of Nigeria (CBN).

Like
Oceanic Bank, officials at Intercontinental Bank too were reluctant to
talk about the progress of their subsidiaries. “When we conclude our
own recapitalisation locally, we would now issue a press statement
stating emphatically on what was bought or acquired and by whom. Until
that is done, we really don’t want to talk on this” a source who did
not want to be quoted officially said.

Intercontinental
Bank’s chief, Mahmoud Lai Alabi has however said that regardless of the
outcome of the on-going recapitalization process, the bank will remain
an international bank. The bank has branches in the United Kingdom and
Ghana presently.

Tunde
Olofintila, Wema Bank’s spokesperson said the bank has no worries as it
has no subsidiary issues to address so it is focussing on restructuring
for regional banking.

Unity
Bank also disclosed on its website that its banking operations are
limited to five zones of Lagos and South West, North West, Central,
North East, South.

Despite
receiving over N200 billion in consideration bonds from AMCON last
year, Nigeria’s sixth largest lender by total assets, Oceanic Bank, is
not out of the woods just yet.

Adesoji
Solanke, banking analyst, Renaissance Group, an investment bank, says,
“While we understand that Oceanic Bank is still carrying out its
valuations and holding discussions, we believe significant progress is
being made. This is on the back of the bank’s decision to dispose of
its Gambia operations which we believe is a decision that would have to
be taken in cognizance of the strategic direction of the acquirer”.