Fidelity’s Eurobond feat gets all round applause
Fidelity Bank Plc, a mid-sized Nigerian lender, became the first bank outside of the country’s big five to access the international capital markets for four years, last week, raising $400m via a five-year Eurobond and gaining the confidence of investors to boot.
The fundraising, following two $500m Eurobonds issued by larger rivals, Zenith Bank and United Bank for Africa, earlier this year, follows a difficult period for the sector, with share prices tumbling more than 50 per cent in the two years to 2016 as Nigeria battled a painful 15-month-long recession, and stringent capital controls led foreign investors to flee.
“For Fidelity to come out with the largest deal they have ever done, sends a very strong story of the return to international markets of the banking sector,” says Dmitry Gladkov, head of the financing group at Renaissance Capital, an emerging market-focused investment bank, that was joint bookrunner.
“It proves that Nigerian banks like Fidelity, with strong credit stories have access to international markets in size and for long-dated financing. It’s another vote of confidence in the recovery in Nigeria.”
Fidelity Bank’s fundraising is instructive. It was essentially a refinancing of a $300m bond due to mature next year, some $255m of which it bought back via a tender offer.
The uniqueness of the Fidelity deal is the fact that many of the investors who took part in the tender offer then, bought back into the new bond, alongside more than 100 fresh investors, particularly asset managers based in London, New York and Boston, a refreshing indication of their confidence in Fidelity and its growth story.
The new issuance was Fidelity’s largest to date. The balance of the money will be used to support trade finance.
The leadership of Kennedy Okonkwo, the bank’s CEO and Ernest Ebi, the chairman, has delivered groundbreaking reforms which have helped to cut the bank’s cost of funds, while also improving the bottomline considerably.
“In the main, what stands Fidelity out today, is that in the years, what you get from the bank is a consistent story with the management sticking to a believable growth projection which gives comfort to investors”, says Ben Anayo, an analyst in London.
BusinessDay learnt that Fidelity’s management painstakingly engaged the investor community abroad with regular contacts at which a careful and steady growth story devoid of undue promises, was sold.
Nigeria’s vice-president, Yemi Osinbajo puts a positive spin on economy. Some 7.4 per cent of loans at the tier one banks were classed as non-performing last year, a level Jumai Mohammed, analysts at Exotic, expects to climb to around 9.8 per cent this year, before gradually declining.
Despite this, Mohammed believes Nigerian bank stocks are currently cheap, with tier one banks typically trading at 1.4 times their estimated full-year book value, versus 2.1 times for frontier market banks in general. Others are also upbeat. Gladkov argues that in terms of macroeconomics, “the Nigerian story has been improving markedly”. Emre Akcakmak, a portfolio adviser at East Capital, a Stockholm-based EM and frontier specialist, says the risk-reward profile of some banks “looks appealing,” with them trading at only 3-5 times forecast 2017 earnings, despite share prices rising by 50-70 per cent in dollar terms (and more in naira terms) already this year, as illustrated in the second chart.
“Having met with several banks in Lagos about a month ago, we concluded that it is not all about gloom. There still seems to be some upside, even after certain provisions we can model,” Akcakmak adds. “Domestic credit penetration is still low at 16 per cent of GDP and we think that the worst is over for the economy, after two challenging years. For the longer term, we definitely expect the banking sector to grow and strengthen, as the economic recovery accelerates and Nigeria’s large 180m population is gradually included in the financial system.”
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