In preparation of a possible acquisition, private equity firm, Milost Global Inc. plans to inject $1 billion to Nigeria’s struggling Unity Bank Plc.
As a means of recapitalizing Unity Bank which is struggling to build buffers after Nigeria’s recession exit, Milost offered to invest $700 million in equity and $300 million in five-year bonds that would probably be converted into shares.
For its first equity investment of $250 million, the New York-based equity firm would get a preliminary 30 percent stake in Nigeria’s second oldest bank, though transaction is still subject to due diligence as well as regulatory approvals, unnamed sources informed Bloomberg.
If approved by the regulatory bodies, Unity bank would be the third investment made by Milost in 2018 alone, following the acquisition of luxury real estate player, Primewaterview limited for $1.1 billion (N396 billion) and a N350 million facility for maritime services firm, Japaul Oil.
In Nigeria, the primary legislation for the regulation of banks is the Banks and Other Financial Institutions Act (BOFIA) which, with the Central Bank of Nigeria (Establishment) Act 2007 (CBN Act) gives the Central Bank of Nigeria (CBN) powers to supervise and regulate banks and other financial institutions in Nigeria.
Nigeria’s banking regulator allows lenders to count certain classes of debt and equity among the buffers that they need to set aside to survive market turmoil without causing risk to the financial system.
As at 2016, Asset Management Corporation of Nigeria (AMCON), which owns 4.02 billion shares and accounts for 34.42 percent of total outstanding shares in Unity Bank, dominated the bank’s bad shareholding structure. Coupled with the country’s slump in oil prices that triggered a foreign-currency shortage and a contraction in the same year.
With the slump that drove the country into recession, some small and medium sized Nigerian lenders battled to rebuild capital levels and pay loans. Unfortunately, Unity Bank which was formed out of the merger of nine banks between December 2005 and March 2006 fell into these category, as it began talks to sell its non-performing loans in 2017 to recapitalize itself.
Milost-Unity bank deal is looking at the second quarter of 2018 for completion while the rest of the investment will be withdrawn at intervals over a period of 4 years, provided Unity Bank has sufficient shares to issue to Milost.
Last year, Milost announced a $255 million financing term sheet for capital Bank of Mongolia Ltd and Soyombo Insurance Ltd, their sister company, the financing is expected to comprise $55 million in equity capital and $200 million in debt.