Nigeria Content Online

The first stage of the operations of the Asset Management
Company (AMCON) would address most of the troublesome loans in the industry,
Mustafa Chike-Obi, the managing director of AMCON, expressed this optimism in
an interview last week.

The AMCON chief also said shareholders of the rescued banks will
never be forced to sell their shares during the recapitalisation process.

“We think that when we have done the first stage, we would have
addressed 80-90 percent of all the troublesome loans in the country,” he said.

“We are taking non performing loans in stages – Phase 1 we
estimate to be about N2.2 trillion face value and roughly 600 billion in actual
cash. The Act specifies what assets are eligible for purchase by AMCON, so it
is determined absolutely by the Central Bank’s guidelines, and the guidelines
in this case are non performing loans – all non performing margin loans for all
banks and all non performing loans for rescued banks.

“In the first phase, first of all, everything has to be
non-performing loans. It is a category. Another category is all margin loans
across all banks and then all other non-performing loans from the rescued
banks. That is the first stage. We anticipate that there may be other loans
that may be troublesome down the road, which we would address later,” Mr.
Ckike-Obi said.

He also assured shareholders of the troubled banks that they
have the freedom to decide how and when to sell their shares.

“They may sell their shares on the market, if they think the
market is high enough; or they can stay and be partners with AMCON in the new
recapitalised banks, but they will never be forced to sell their shares and
nobody will force them out,” he said.

Freedom to sell

Mr. Chike-Obi said major conflicts between the banks and
shareholders are not really anticipated. According to him, the NDIC is the only
option left for any bank in an irresolvable conflict with its shareholders.

“Our view is pretty clear. What we (AMCON) would do is that we
will buy the non performing loans and we will offer to recapitalise the rescued
banks. Negotiations between the banks and the shareholders, we expect, between
those two,” he said.

“If the existing shareholders don’t agree to a merger, the only
option left for them is to go to the NDIC where they would lose everything, so
we don’t expect much… This is a win- win for everybody. The existing
shareholders get something, the new shareholders get something. Most of these
rescued banks have interested buyers’ interested merger partners, most of them
do. There has been a lot of work done with them and we know who they are, both
local and international,” Mr. Chike-Obi further said.

Afrinvest, an investment and research firm, said the AMCON
intervention should be good for the economy.

“AMCON has offered to purchase an estimated N2.2tn (US$15.0bn)
in bad loans in exchange for 7-year bonds guaranteed by the Federal Government
of Nigeria. This should help plug the negative equity of the rescued banks, as
well as get banks lending again.

“Another crucial point in our view remains the relatively small
window within which banks are expected to deal on these terms. The AMCON has
said that it expects all transactions involving the purchase of NPLs from banks
to settle on or before December 31, 2010. This may prove to be impracticable
for a number of reasons, including the length of time required to carry out
necessary due-diligence on the relevant assets, as well as the impact the
existing market conditions surrounding bond pricing will have on funding for
AMCON,” Afrinvest said.

AMCON was set up as a resolution trust vehicle, following the
Central Bank induced reforms in 2009, which led to the sack of the chief
executives of all eight banks, as well as the injection of N620.0bn (US$4.0bn)
into these institutions. The audits revealed severe impairment to asset quality
across the sector, a display of grave corporate governance abuses amid serious
liquidity squeeze in several banks.