Exotic Capital a leading frontier and emerging markets investment firm based in the United Kingdom, has said that the most likely way out of the debt crisis rocking the banks and Etisalat Nigeria is for the banks to restructure the loan and find a buyer for the warehoused shares of Abu Dhabi parent Etisalat. It said that the Nigerian banks are very likely to find a buyer for the shares before the end of the year.
In a report titled ‘Nigeria Banks’ it said “in the event that these banks are not able to restructure the loans at favourable terms with the company, then one of two things will have to happen: The banks swap their loans to equity, recognising the loans as investments. We don’t expect banks to have the capacity to take on such investments or be a willing party to a loss-making underlying asset.
“The banks restructure the loan, although in the near term they will be required to make provisions on the loan, until they find a buyer. We believe the second scenario is more likely, but the banks could possibly resolve with a new buyer before the end of the year”.
Exotix Capital in the report said the impact of the medium-term seven-year facility secured by Etisalat Nigeria from the consortium of 13 banks is manageable.
The analysts estimate a minus 12 per cent impact on the banks’ net profit in the 2017 financial year, a negative two per cent impact on their equity and, a modest 0.3 per cent hit on their capital adequacy ratio.
The report says a bailout of Etisalat Nigeria by the Central Bank and Asset Management Corporation of Nigeria is unlikely. Among the group of banks involved in the Etisalat loan crisis, the biggest contributors are Zenith Bank with N80 billion, GTBank with N42 billion and Access Bank with N40 billion.
The lowest amount of loan in the consortium was FCMB at N4.5 billion.
The report further said “We estimate a modest impact on banks. At a headline level, loans to Etisalat Nigeria represent 1.9 per cent of aggregate bank loans. Likewise on our sensitivity analysis, the Etisalat loans would on average have a -12 per cent, -2 per cent and -0.3 basis point impact on 2017 financial year net profit, equity and capital adequacy ratios for the banks, respectively. We believe the banks should easily be able to absorb a shock of this magnitude”, Head of Equities Financials Research, Rahul Shah and Equity Research Analyst, Jumai Mohammed, said.
The report ruled out any likely bailout by the Asset Management Corporation of Nigeria (AMCON) citing the current weak financial state of the corporation, but said however that the recent Central Bank of Nigeria’s (CBN) directive to the banks to halt further action on the debt could provide some short term respite.
“Is a CBN bailout likely? Given the weak state of AMCON finances, we think this is unlikely. However, CBN recently directed exposed banks to halt further action on the debt, meaning some form of bridge funding could be under consideration to cover the period until a new buyer steps in”, they noted. On the possible options which the banks could explore to recoup the outstanding sum from Etisalat Nigeria, the report maintained that parties could come to favourable terms for loan restructuring.
