18 September 2013

Nigeria: Journey Towards the Sale of Enterprise Bank

Obinna Chima examines the sale of Enterprise Bank Limited as the Expression of Interest for the bank ends on Friday

With exactly two days to the end of the deadline for the Expressions of Interest (EoIs) for the purchase of Enterprise Bank Limited by preferred buyers, banking analysts are watching with keen interest to know the institutions that will qualify for the next stage of the sale process.

While the Asset Management Corporation of Nigeria (AMCON) and the financial advisers have so far kept the identities of those that have indicated interest in the purchase of the bridged bank under wraps, some analysts have argued that preference should be given to strong and well managed local bank that desires to acquire the commercial bank. This, they argued, would produce a merged financial institution with better value as the potential investor already understands the Nigerian banking environment.

However, some other analysts have argued that a foreign investor acquiring Enterprise Bank would enhance competition and strengthen the industry's risk management profile.

Proponents of the call of the sale of the bank to local investors cited the acquisition of the defunct Intercontinental Bank, Oceanic Bank and FinBank respectively by Access Bank Plc, Ecobank Nigeria and First City Monument Bank Plc during the last banking sector reform.

These transactions to them have since delivered value to stakeholders because of the involvement of local banks. Also, they cited the recent acquisition of the operating licence of the former Societe Generale Bank of Nigeria (SGBN) by a local core investor operating as Heritage Bank Limited.

Enterprise Bank is wholly owned by AMCON. The other commercial banks owned by the corporation are Keystone and Mainstreet Banks.

The corporation had acquired them in August 2011, after the intervention by the Nigeria Deposit Insurance Corporation (NDIC) and the Central Bank of Nigeria (CBN). Enterprise Bank was created from the carcass of the defunct Spring Bank, while Keystone Bank and Mainstreet Bank were created from the defunct Bank PHB and Afribank respectively.

As part of efforts to divest its shareholdings in the three banks by 2014, starting with Enterprise Bank, AMCON had appointed Citigroup Global Markets Limited (Citi) and Vetiva Capital Management Limited as Financial Advisers, as well as G. Elias & Company as Legal Adviser to the transaction.

Requirement from Interested Buyers AMCON had on September 2, said interested buyers should indicate their interest by submitting an EoI with information such as the "description of acquiring entity or vehicle with evidence of registration or incorporation; ownership of the acquiring entity or vehicle; identifying all shareholders with a five per cent or more stake; strategic rationale for the acquisition of Enterprise Bank; relevant financial services industry experience and/or demonstrable evidence of ability to manage a bank of this nature."

Also, interested buyers were requested to submit evidence of financing capacity, while in the case of a consortium, they were requested to "provide evidence of alliance/partnership/joint venture between members in the consortium, clearly indicating the lead member authorised to submit the EoIs."

The corporation had added: "Upon receipt and evaluation of the EoI, a shortlist of buyers, who in AMCON's view are deemed to be fit and suitable from a regulatory perspective (amongst other things), will be prepared and will proceed to the first phase of the transaction. "Shortlisted buyers will be contacted and advised on next step." It, however, warned that, "this is not an invitation to tender," adding that interested buyers should make their independent enquiry regarding the transaction.

However, while the Chief Executive Officer, Institute of Credit Administrator, Dr. Chris Onalo, recognised that in a free market economy, both foreign and local investors are always given equal opportunity in a bid process. He argued that selling Enterprise Bank to another local rival will bring about economies of scale.

However, Onalo insisted that the potential investor(s) in the bank must have a disciplined management board and a strong pedigree of adherence to corporate governance. "Besides that, it will be a source of Nigerian pride that a local investor or local bank acquires the bank. If there is a local bank that is qualified to buy the bank and turn it around, why not? Any economy that is established on the basis of foreign investments cannot be sustained because if there is any catastrophe, they will just pull out and go.

"However, it must not be a policy issue that a local bank should just be allowed to buy it. In a free market economy, everybody is given equal opportunity," he argued.

Test of Appetite Nevertheless, Head of Research and Corporate Development, Consolidated Discounts Limited (CDL), Mr. Jimi Ogbobine, argued that the sale of Enterprise Bank would not be real test of investors' appetite for the three bridged banks.

He explained: "This is because Enterprise Bank is a legacy bank from the defunct Spring Bank and even after the Soludo reform, it was seen as the negative postcard of that reform and that perception has remained. The real test will be the sale of Mainstreet and Keystone Banks. This is because of their size."

On his part, the Head of Research, BGL Securities Limited, Mr. Femi Ademola, reckoned that any local bank that wants to buy Enterprise Bank or any of the two other banks must be a strong bank.

"Any bank that is not strong that wants to buy another bank may end up compounding its problems. For a local bank to buy Enterprise Bank, it has to be at arms' length, but it shouldn't be a situation where they have to protect the sale of the bank for a local investor," he added. But the Head of Research, Sterling Capital Limited, Mr. Sewa Wusu, declared that in view of risk management failures that led to the regulators' intervention in 2009, it is wise for a foreign investor to acquire Enterprise Bank.

"A foreign bank will bring about efficiency and improved competition in the industry. It will also be an opportunity to also bring strong risk management. Yes, Nigerian banks have come of age, but I think we need some incursion of more foreign banks to spur competition," Wusu added.

Enterprise Bank's Scorecard Enterprise Bank Limited's gross earnings increased significantly to N40.4 billion as at December 2012, compared to the N10.5 billion achieved in the five-month period ended 2011. The bank also realised a profit before tax (PBT) of N11.3 billion as at December 31, 2012, as against a loss of N5.2 billion recorded in the five-month period it operated as at December 2011. Its deposit also grew from N162.6 billion in 2011, to N208.4 billion in 2012, just as its total assets climbed from N198.5 billion as at end of 2011 to N261.1billion in the year under review.

The Chairman of bank, Mr. Emeka Onwuka, had attributed the achievement by the bank to the sustained growth in quality risk asset creation, which equally engendered growth in interest income. Also, AMCON's Managing Director/Chief Executive Officer, Mustapha Chike-Obi, pointed out that the corporation would get the best return from the ongoing divestment, adding that the whole process would be done in the best interest of the financial sector.

He said: "Selling a bank is a serious matter. We don't know what the banks are worth today. We need experts to go into the banks and value what their current worth is. For us to say this is how much we are selling this, we need to know the value. The Managing Director/Chief Executive Officer, Enterprise Bank, Mallam Ahmed Kuru, also assured customers that the bank had been positioned to remain efficient. According to Kuru, the management of the commercial bank has initiated a very strong corporate governance structure since it took over.

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