Diamond Bank Leads Nigeria Capital Raising for Infrastructure

Diamond Bank Plc (DIAMONDB) is planning the biggest fund raising by a Nigerian lender this year as banks seek dollars to finance oil, power and other infrastructure projects, while meeting central bank capital requirements.

The Lagos-based lender plans to raise as much as $750 million in shares or bonds this year to fund more projects and raise its capital adequacy ratio, a measure of financial strength, to between 20 percent and 25 percent, according to Chief Financial Officer Abdulrahman Yinusa. The Central Bank of Nigeria requires a ratio of 15 percent and Diamond Bank’s was 17.3 percent at the end of 2012. Fidelity Bank Plc (FIDELITY) is planning to issue a $350 million Eurobond to finance infrastructure including power and oil and gas industry projects.

While Nigeria’s banks are returning to profit after the industry came near to collapse in a debt crisis in 2008 and 2009, many lenders need to rebuild their capital adequacy requirements, said Ronak Gadhia, an African equity analyst at Exotix Ltd. in London. Lenders also need access to dollars if they want to benefit from project lending, he said.

“The retail market hasn’t really taken off and most of their loan growth is being driven by big infrastructure lending or big projects in the oil and gas industry or the power industry which everyone seems to be getting excited about,”Gadhia said in a phone interview yesterday. “A lot of that lending has to happen in dollars.”

Energy Projects

Nigeria, Africa’s top oil producer, is selling majority stakes in power plants and letting private investors acquire holding of as much as 60 percent in six transmission and 11 power distribution companies spun out of the former state-owned utility.

Banks have also increased lending to the oil industry as smaller producers increased drilling activity as they seek to boost output. Companies including London-based Heritage Oil Plc and Lagos-based Neconde Energy Ltd. bought stakes in fields owned by Royal Dutch Shell Plc, Eni SpA and Total SA.

“Confidence is returning on the Nigerian capital market, likewise returns, which is good for what we want to do,” Yinusa said in a phone interview yesterday. “Returns on Nigerian international debt instruments like the Eurobonds have been impressive, likewise investor interest, that for us gives us a chance.”

Market Rally

The Nigerian Stock Exchange All-Share Index has advanced 21 percent this year, the third best performance in Africa, according to data compiled by Bloomberg. Yields on the West African nation’s Eurobonds have fallen 30 basis points this month to 4.04 percent, the lowest since Jan. 31.
Central Bank of Nigeria Governor Lamido Sanusi fired the chief executive officers of eight of the country’s 24 lenders in 2009 and the government set up the Asset Management Corp. of Nigeria in 2010 to buy bad debts from the country’s banks, including a 25 billion-naira ($159 million) loan Diamond Bank had extended to Geometric Power Ltd., a power generation company.

The lender’s shares listed in Lagos, Nigeria’s commercial capital, have tumbled 13 percent in the past two days, the biggest drop over that time period since Oct. 16, paring their gain this year to 28 percent. The Bloomberg Nigerian Stock Exchange Banking 10 Index (NGSEB10), which tracks the country’s 10 largest lenders, has risen 19 percent in the same period.

“It’s going to bring about some dilution to shareholders, that’s what you’re seeing in the share price,” Adeolu Omotola, an equity analyst at Asset and Resource Management Company Ltd., said by telephone from Lagos yesterday. “On the one hand it’s opportunity driven, but on the other hand it’s almost a necessity as the capital is looking low.”

Profit Rises

Diamond Bank raised its annual loan-growth target last year to 40 percent from 20 percent. The bank reported yesterday that full-year 2012 net income rose 61 percent to 22.1 billion naira as loans to customers surged 51 percent. Diamond raised $200 million last year, less than the $500 million it had initially sought, Yinusa said.

“That we raised only $200 million last year out of about $500 million we wanted was a matter of choice,” said Yinusa.“We had an issue with the pricing of the instrument at a point and also, about the appropriate time to proceed with the fundraising, so we stopped.”

While Diamond Bank should be able to raise this year’s target amount “they need to get a bit clearer about how much equity they’ll be raising and how much debt they will be raising,” said Gadhia. “If I was a current shareholder and the bank said we’re going to the market and raising more money at this level I’d be disappointed.”

Source: Bloomberg