Mr. Hassan Musa Usman
The Managing Director/ Chief Executive Officer of Aso Savings & Loans Plc, Mr. Hassan Musa Usman, tells Goddy Egene about the performance of the company in the challenging mortgage industry and gave recipe on how to grow the sector. Excerpts:
Aso Savings recently embarked on a recapitalisation exercise via Rights Issue, can you give us an update on it?
We are looking to raise N5.5 billion through the rights issue. We want to have two stages of fund raising process. The first step is to get funds from the existing shareholders. The second is to go to other investors through special placement to raise additional money.
Feedback from the rights issue showed that it went very well, particularly with the larger investors. The retail investors have been very slow. But my guess is that at the end of the day, we will get very good subscription from large investors. Once we are through the rights issue, we will now go for a private placement.
Can you tell us why you embarked on the capital raising exercise?
Well, we embarked on it for several reasons. The company is at a level right now that we need to move to next level. We have not raised capital for the past four years or so. And during that time, there are many developments in the market including new entrants in our business segment and market. The primary mortgage market space has increased significantly. What we can do is a function of our shareholders’ funds. Without reasonable shareholders’ funds, we will not be able to do large volume of transactions. Also between 2008 and 2010, we had a diminution in shareholders’ funds. We had some of loans that went bad and we had to provide for them.
So we are raising our capital to a better level and be able to service a larger market. I give you an example, in the Lagos market alone, if we were able to raise N50 billion within six, seven months, we have people to buy houses for. But we cannot put that kind of money on our balance sheet without significant shareholders’ funds. It is therefore important to expand our shareholders’ funds so that we can have access to more funding that will allow us take opportunities out there, particularly in Lagos, let alone Abuja, Port Harcourt among others. Lagos is a very big market and we want to play a significant role in Lagos and it is important that we have adequate capital.
No doubt , Aso Savings is leading player but what has been its performance in the recent years?
The company has come through a very rough time. But by March 2012, which was our last financial year end, we had a profit. We have come out of the rough years of 2009 and 2010 where we had some major losses. The losses, actually manifested on the account of the fact that we tried to clean up our books, hence we provided for loans that were bad. We had a loss of almost N3 billion in 2010 but we have recovered from it and have started making profit. It is important that we have adequate capital so that we can realise the growth strategy. Performance wise, we have done well. But there are many challenges in the mortgage market. We are in an environment where we use short term money to pay long-term assets. In mortgage business, you are supposed to get 10 years, 15 years’ funds.
But most money you get in Nigeria are 90 days or 180 days. That is an issue. But we are trying to work with a few parties and see how we can create some investment, which pension fund administrators (PFAs)can invest in so that we are doing mortgages for 10 years, 15 years for N10 billion. We know we have enough people coming to buy a bond that is for that period so you do not have to worry about any mismatch in your portfolio. I believe that working with other parties, we will be able to overcome that issue.
Talking about getting long-term funds, what will be your suggestion on how to achieve this?
I think long-term funds are available but they are not being put into the right places. By which I mean, if you look at the funds available to PFAs, it is estimated at an equivalence of $20 billion in the last five years. And we know this can be doubled in the next few years which will be about $40 billion or so. It is important that for the growth of the Nigerian economy, part of that money should begin to go into long-term non-government instruments.
Corporate bonds, mortgage-backed securities among others. And that will require some incentives being put in place. Government has created that incentive by allowing bonds to be tax-exempt and this will create appetite. But for companies trying to get bonds, it has been very difficult to get bonds at between 17 per cent and 18 per cent. It is very difficult to make profit and pay back that bond as well. Therefore, one thing that needed to be done at micro level is to try and control inflation in order to bring down the interest rate a little. Also, we believe government expenditure can be controlled which can also bring down rates.
But on our own part, we trying to work with PFAs and investment banks so that we can create mortgages. If we create those mortgages using our own monies then pull them together and issue mortgage-backed securities. We will then invite PFAs to invest in such securities. If PFAs come in they put down their money say 10 years every month they get their returns and the money goes into their account. They are not just putting their money in an instrument but there is a collateral because people buying the houses will have collateral.
We are trying but it has been difficult because some PFAs feel they can invest in government bonds and get good returns. Therefore, why bother with corporate bonds if you can get 17 per cent on government bond. But going into 2013, things will change because some PFAs will want to divest their funds and that is where we want to take advantage of that.
As they divest, we would try and bring instruments such monies could be put into that will result into long-term funding to do mortgages. This is a major area that we are banking on. Besides, we are talking to few institutions, some of them local while others outside Nigeria. We are saying, give us a funding line for seven years. We can use that money to create loans, mortgages and fund developers so that the houses can be built and mortgage can be created on the back of that. We are hopeful that by the first quarter of next year, some positive things will happen in that regard.
Considering the challenges in the mortgage industry, what are the changes Aso Savings is making to stay ahead of competition?
Changes are going on every day. We are looking at what we are doing on daily basis and see what we can do better. We are now going through a restructuring that will lead to a stronger platform so that we can deliver better services for our customers and returns for shareholders. We are also using a balanced score-card approach whereby each person in the company, has a template to show what their deliverables are, from financial perspective, consumer perspective and so on and so forth.
Through the balanced scorecard, people will be held more accountable. If you are not delivering on your targets, there are consequences. And if you are meeting your targets there are incentives. We reward you with performance bonus among others. Another thing we are doing is shifting our funding structure from short term deposits towards wholesale market. That is towards pension funds, insurance companies and assets management companies.
We explain our strategies to them and they can see what we are doing and can afford to wait for three to four years for their money. We are getting a lot more from such counterparties. We are also taking the view that even if you have the money in the world, you will not be able to create enough mortgages because we do not have houses that are good enough to be mortgaged. So we are working with some developers. From 2013, we what to identify not more 10 developers, each of one would be able to do 1,000 houses. Once they are done, we roll out the mortgages.
This means that even if we are not developing the houses, we have partners that can do that. In some cases, we have lands that are available and we will make the lands available to the developers. We will say, take the land, use your expertise and build the houses there. Once they build the houses, they would be sold, we get out share of profit and also create mortgages for those that would want to buy the houses from the developers. So these are some of the innovations were doing.
Talking about partnership, can you tell us about your relationship with some state governments in this regard?
The partnership with the state governments is going very well. With started it with Ondo State about four years ago where we did some 120 houses. We then moved to Cross Rivers State about two years ago. We have done 200 houses so far in Calabar. We are about starting the second phase of 400 houses in Calabar.
The houses are targeted at civil servants primarily. We have also signed up with Oyo State government to do about 1,500 houses. Our target is to ensure that within the next one year 200 houses are delivered and by year three the entire 1,500 houses are delivered.
These are affordable houses for regular people. We have signed with Abia State to deliver 200 houses over the next 18 months in Umuahia. We are working with Delta State government. We are also looking to finalise with Kaduna State, Gombe State and Edo State. We feel that by partnering government, we can create critical mass of people in state capital. We have worked in Lagos, Abuja and Port Harcourt and those can drive themselves. They do not require additional partnership. But some other states where we have large number of civil servants, without partnership with government, this thing cannot work. That is why we are partnering state governments.
Generally, how you do see the future of mortgage banking in Nigeria?
The future is very bright because the mortgage market is heavily under tapped in Nigeria. The mortgage market is less than one per cent of Nigeria’s Gross Domestic Product (GDP) compared with South Africa, Morocco, Egypt and so one where it accounts for almost 20 per cent of their GDP. Nigeria’s GDP is about $30 billion and we are saying that in the next 10 years, there is no way the mortgage market will not hit 10 per cent of the GDP. So that is what we see happening. That will happen but it will be a function of so many things. A function of legislation. We expect to see more favourable foreclosure process in place. Many people want to bring money to fund mortgages in Nigeria but they are reluctant. They say, if I put down my money and the guy defaults, how do I get my money back.
Right now, you can foreclose but it is quite cumbersome. We need to have straight-forward more non-judicial process.
Secondly, for some part of the country, house are so important, so let us create some kind of fund that will stimulate the mortgage sector. Why did I say this, not because I am a mortgage operator. But apart from agriculture, there is no sector today that can provide the quantum of jobs the mortgage industry can create.
For instance, when you are building a house, you are buying cement and furniture when the house is done. Someone is making the doors, someone is supplying the paints, aluminum sheets, glasses among others.
One, the construction site you have food vendors there. Each house you are building, there are five or six people that are involved. The job creation potential of the industry is massive. I am very happy government is working on creating some funding scheme whereby funding can be made available to stimulate housing delivery in the country. With these things in place, I see a very bright future for the Nigerian mortgage industry. I am very optimistic about the Nigerian mortgage market. It may not be in next 12 or 18 months. But within the next five years, you will see an explosion in housing sector of Nigeria and Aso Savings want play major role in the market.
If Aso Savings wants to play big in the mortgage market, it means more earnings. What will be your advice to existing shareholders and potential ones?
My advice is that now is the right time to come in. You do not want to come at the top of the market. The Nigerian stock market has gone through a very major correction and valuations are quite low. If you look at our sector, the growth potential is immense and the magnitude of growth ahead of us is really quite staggering. This is the time to take a position. Aso Savings is a foremost player in the sector and as it grows, the company will benefit from it. Therefore anybody putting money now with medium and long-term perspective will see good returns on investment. This is the time, come in, buy low and see your funds multiply over the next few years.