The United Bank for Africa Plc (UBA) has notified the investing public of its intention to launch up to $500million senior unsecured medium term debt notes (Eurobond).
Fitch Ratings has assigned an expected rating of ‘B (EXP)’ to the United Bank for Africa Plc proposed senior unsecured medium-term notes. The bank plans to raise between $350 million and $500 million of fixed-rate five-year bonds.
UBA intends to use the Notes directly but will retain the flexibility to substitute the issuer with an offshore special purpose vehicle, where market conditions require and allow for such, prior to the maturity of the notes.
The bank intends to list the notes on the Irish Stock Exchange (ISE), with the expectation that the notes will be traded on its regulated market.
Already, the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) have given “No Objection” approvals to the transaction.
The bank intended to make announcement yesterday, May 23, regarding planned investor meetings in Europe and the United States, in respect of the issuance of the notes.
The commencement of the transaction will however be subject to finalising transaction documentation and prevailing market conditions.
UBA intends to utilise the net proceeds of the notes for its general banking purposes, stating that it will pay the net proceeds from the notes issuance into its foreign currency domiciliary account, which may be retained by UBA in foreign currency or converted into naira, depending on the bank’s requirement from time to time.
The United Bank for Africa Plc further said in a statement to investors at the Nigerian Stock Exchange (NSE) that a certificate of capital importation (CCI) will not be obtained in respect of the proceeds of the notes that are not converted into naira, noting that a CCI is only issued in respect of capital imported into Nigeria and converted into naira.
UBA intends to make principal repayments and interest payments on the notes from its foreign currency reserves, since it will not be able to obtain access to the Nigerian foreign exchange market for the purpose of making such payments.
Notwithstanding the foregoing, UBA said it will obtain the approval of the CBN to access the official foreign exchange market, if for any reason the bank does not have sufficient foreign currency reserves to meet the principal and interest payments due on the notes.
Based on Fitch’s assessment on expected recoveries in a liquidation scenario, an expected Recovery Rating (RR) of ‘RR4 (EXP)’ is also assigned to the notes, implying average recovery prospects.
The notes will constitute senior unsecured obligations of UBA and will be used for general corporate purposes.
Fitch said the assignment of the final rating is contingent on the receipt of final documents conforming to the information received to date. The expected rating is in line with UBA’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘B’. In Fitch’s view, the likelihood of default on these notes reflects the likelihood of default of the bank.
According to Fitch’s criteria, a bank’s IDR usually expresses Fitch’s opinion on the risk of default on senior obligations to third-party, non-government creditors as in Fitch’s view, these are typically the obligations whose non-performance would best reflect the uncured failure of the entity.
Where a bank has a Long-Term IDR of ‘B+’ or below, Fitch usually assigns an RR to the entity’s issues. RRs provide greater transparency on the recoveries component of Fitch’s assessment of the credit risk of low-rated issuer’s securities.
“A change in UBA’s IDR would affect the rating of the notes and may also affect recovery prospects and the RR. UBA’s IDRs are driven by the bank’s standalone financial profile, as reflected in its Viability Rating (VR) of ‘b’. UBA’s VR and IDRs are primarily sensitive to further asset-quality deterioration and capital deterioration as well as continued pressure on foreign-currency funding and liquidity,” Fitch Ratings stated.