Indications are that Milost Global Inc. is eyeing Unity Bank with the hope of injecting about $1 billion to resuscitate and recapitalise the bank. Unity has been struggling to build buffers after a the economy was hit by recession. New York-based Milost is said to be offering to invest $700 million in equity and $300 million in five-year bonds that can be converted into shares in the Nigerian bank. The private-equity firm will get an initial stake of about 30 per cent in the bank in exchange for its first equity investment of $250 million.
The transaction is still subject to a due diligence as well as regulatory approvals. The first part of the deal may be completed in the second quarter according informed sources. The rest of the cash will be drawn down in intervals over a period of four years, provided Unity Bank has sufficient shares to issue to Milost. Some small- and mid-sized Nigerian banks are battling to rebuild capital levels after a slump in oil prices triggered a foreign-currency shortage and a contraction in the country’s economy in 2016 made it difficult for businesses to repay loans. Unity Bank, which was formed out of the merger of nine banks between December 2005 and March 2006, said in April last year that it is in talks to sell its non-performing loans to avoid penalties after missing a deadline set by regulators on its recapitalisation plans.
An investment in Unity Bank will be Milost’s third in a publicly traded Nigerian company since it agreed to pump $350 million into oil-services company Japaul Oil & Maritime Services Plc in February and to provide a $250 million financing facility to Resort Savings & Loans Plc. The private-equity firm is targeting companies that trade at less than half of their intrinsic value using a facility combining debt and equity that it calls the Milost Equity Subscription Agreement, it said in a statement. Milost buys shares of a company at a minimum 50 per cent premium to its market value, and then pegs this price over the next 90 days. If the stock fails to exceed this threshold, the target company will pay the difference to Milost in the form of extra stock, and a penalty of 10 per cent to 20 per cent of the discount that the share is trading at over a five-day period, it said.
“The Milost Equity Subscription Agreement is a growth instrument that creates and builds confidence in the stock of the companies in which it invests,” the company said. The targeted company cannot draw down the full committed facility in one tranche and is only allowed to use it from time-to-time over a three- to five-year period, with Milost eyeing a seven- to nine-year horizon for an exit, it said.
Milost is taking a bet on Unity Bank as the economy of Africa’s largest oil producer shows signs of recovering from a recession after three straight quarters of expansion in gross domestic product, which the International Monetary Fund estimates will grow 2.1 percent this year. Net income at Unity Bank slid almost 54 percent to N2.18 billion in the 12 months through December 2016, with assets of N493 billion, according to the company’s latest annual report. Its NPLs stood at 48 percent in 2016, when it reported its second straight year of negative capital adequacy ratios, the report showed. The stock has gained 10 percent this year, giving Unity Bank a market value of 15.8 billion Naira.
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. Capital adequacy ratios across the banking industry worsened to 11.51 percent in June from 14.78 percent a year earlier, according to the central bank. Bloomberg
