This Day (Lagos)

21 February 2009

Nigeria: American Billionaire Soros Targets Banks

Lagos — The stock market meltdown and credit crunch in the country has not deterred the $20 billion hedge fund company belonging to American billionaire, George Soros from scouting for potential opportunities in Nigeria's banking sector.

The American financier-cum-political activist and philanthropist, may be looking to invest in the financial services segment of the capital market where stock prices have collapsed during the past year amid intensifying fears about the level of supervision and transparency, reports the Financial Times.

Nigeria along with Ethiopia topped a new index of African potential investor destinations this week, with the survey organisers saying the continent offers good potential growth even against the global economic crisis.

Senior analysts from Soros Fund Management visited Nigeria this week to meet bankers and government officials, raising hopes in the market of a return of foreign interest after many portfolio investors fled during the course of the past year.

Remi Babalola, Minister of State for Finance, confirmed he was due to brief Sharif Atta, a senior analyst at Soros Fund Management, and Ahmad Zuaiter, a portfolio manager, on the investment climate in Nigeria.

"What makes it interesting is that they are the first to come since the global financial crisis and since the departure of most other investors from the market," Mr Babalola told the Financial Times. "It's going to be a magnet for other investors to come in."

The Soros delegation met Nigerian bankers including senior managers from United Bank for Africa and Diamond Bank during their trip to Lagos, according to sources within the banks. Representa-tives of at least two other big US and European funds have also visited Lagos since the start of the year, according to another industry source. Soros Fund Management declined to comment.

The trips take place against a backdrop of intensifying concerns about the health of Nigeria's banking sector, which enjoyed spectacular growth after a consolidation exercise launched in 2005 before share prices began to tumble in March last year.

The market capitalisation of the Nigerian Stock Exchange has fallen by about 60 per cent in local currency terms since the market reached a historic high on March 5, 2008, according to data from AfriFinance, mainly as a result of losses in banking stocks which have a heavy weighting within the overall share index. Some analysts say the valuations mean some banks now appear much more reasonably priced.

Nigerian regulators have been quick to blame the collapse on foreign investors withdrawing funds as the global credit crisis intensified.

But analysts argue hedge funds and other international investors, which never held more than an estimated 10-12 per cent of share capital, appear to have played only a secondary role. Many industry insiders say the sudden collapse was rooted instead in the widespread practice of banks loaning money for share purchases, which allowed soaring valuations to lose touch with market fundamentals.

The plunge in stock prices has provoked concern about the extent of banks' exposure to losses from these loans and raised questions about the level of supervision by the Central Bank of Nigeria and other regulators. Many investors call for Nigerian banks to adopt much more transparent accounting procedures.

Victor Osadolor, group chief financial officer for UBA, who met the Soros team, said they were keen for greater transparency. "These are sophisticated investors, so they understand where to come in. There's plenty of bargains," he said.

Interest in Nigeria as an attractive investment haven is beginning to pick up again, with a survey released this week on African potential investor destinations showing the country and Ethiopia topping the index.

Africa had seen an investment boom in recent years but flows into the region have been drying up as the global financial crisis and falling commodity prices take the shine off what were seen as promising frontier markets.

Business consultancy African Rainbow's Star of Africa index ranks 53 African countries in terms of their investment potential in various fields, with its creators arguing that potential growth in energy, water and communications consumption could amply reward investors taking the risk.

"It is for investors to make sure they don't miss a trick by overlooking a country they would otherwise have missed," said Katharine Pulvermacher, chief executive of African Rainbow.

"Africa is going to overtake the Middle East to become the second fastest growing region in the world after emerging Asia. It will be affected by the global financial crisis but it is much less exposed than many places."

South Africa, Mauritius and Tanzania took third, fourth and fifth place respectively, she said.

But it said some countries still have a long way to go, with Somalia, Chad and Eritrea named the least appealing markets on the continent, particularly due to low ratings for corporate governance and social capital.

Nigeria also scored poorly for corporate governance but its potential for infrastructure expansion in electricity, water, information technology and communications as well as its status as Africa's most populous country were enough to propel it to the top of the list.

Rising oil prices had made Nigeria a favoured investment destination but as the oil price slumped in recent months, the government has imposed capital controls on the depreciating naira leaving investors concerned that they might not get their money out.

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