Festus Akanbi sought the views of financial experts on the increased appetite of banks for loan syndication and the consensus is that both the banking industry and the overall economy will benefit tremendously as Nigeria continues to live to the billing as investment destination
As the appetite of foreign financial institutions for investment in Nigeria rises, watchers of the unfolding scenario said concerted efforts should be put in place not only to maintain the trend but also to ensure it significantly grows the nation’s Gross Domestic Product.
The fresh wave of optimism was anchored on the report that over $10 billion capital has already been raised through syndicated loans this year, a development said to have placed Nigeria ahead of other countries in the structured loans agreement market in Africa.
Confidence in Growing
An earlier report by Reuters said the rising appetite for syndicated loans in Nigeria is largely driven by the growth in confidence among international lenders as the country attempts to resolve transparency and credit risk concerns.
A fortnight ago, telecoms giant, MTN Nigeria became the latest borrower when it agreed a $3 billion loan to expand its network through Guaranty Trust Bank (GTBank) and other Nigerian banks, with other lenders -Citigroup, Standard Chartered, Industrial and Commercial Bank of China, China Development Bank and China Construction Bank-.
Also, the Dangote Group is in talks to raise a debut $3.5 billion loan to fund fertiliser and oil refinery projects with lead banks Barclays, GTBank, Standard Bank and Standard Chartered.
The syndicated loan would cover a period of seven years and will be halved between local lenders led by GT Bank, Standard Bank, Standard Chartered, and other international lenders, sources close to the deal confirmed.
Quoting the source, “If any international bank wants to make a new play for Africa then this is the deal to join.”
There has been no official statement from Dangote Group on the deal.
It also remains to be seen how international lenders react to the risks associated with such a huge syndicated loan as the Dangote Group has never taken out such loans.
The Dangote Group’s position as the largest conglomerate in Nigeria is set to whet the appetite of lenders starved of such deals last year. In a filing with the Nigerian Stock Exchange in December, the group forecast a 38 percent rise in net profit to N81.5 billion for the first quarter compared to a year earlier.
Industry analysts said the two major transactions almost match the $7.96 billion Nigerian borrowers raised throughout 2012, which is the country’s highest-ever annual loan volume.
“The feeling is that Nigeria will have outstripped South Africa as the top market by 2015 from a loan market perspective. You have already seen that this year – you can’t ignore Nigeria,” one London-based banker said.
In January this year, Nigerian National Petroleum Corporation (NNPC) agreed a $1.5 billion corporate deal; Indorama Eleme took a $800 million project finance loan in mid-February to fund a $1.2 billion green field fertiliser project; and oil and exploration company Neconde Energy marked its debut in the market with a $470 million corporate deal in early April.
What Economists Say
Managing Director/Chief Executive, Cowry Asset Management Limited, a member of the Nigerian Stock Exchange, Mr. Johnson Chukwu, in response to THISDAY enquiries said: “The increasing number and value of syndicated bank loans in Nigerian since the start of this year is an indication that investors are beginning to take advantage of the huge investment opportunities in the country.”
He added that the development also shows that both local and foreign lenders are now willing to bet on the success of real sector capital projects in specific sectors of the Nigerian economy such as telecommunications, extractive industry (particularly Cement manufacturing), Oil & Gas, Electric Power, etc.
He is of the opinion that should this trend continue, it will spur a significant growth in Nigeria’s Gross Domestic Product and a further diversification of the country’s economy.
Counting on the ability of the Nigerian banks to rise to the occasion, Chukwu said, “With over N21 trillion in total industry assets and liabilities at the end of 2012 and non-performing loans to total loans ratio of less than five percent Nigerian banks are in a position to substantially meet the funding needs of ‘triple A’ borrowers in the country,” adding “The availability of foreign credit lines and other on-lending facilities from their correspondent banks further enhance Nigerian banks’ lending resources. The challenge with credit availability in Nigeria is less of a problem to the large conglomerates but more of a problem to the small and medium scale enterprises.”
Toeing this line of optimism is Managing Director, Resources and Trust Company, Mr. Opeyemi Agbaje, who believed that the readiness of Nigerian banks to participate in syndicated loans approval would enable operators to share risks. According to him, “Syndicated loans have value in a financial system. Loan syndication enable banks share risk and raise lending competences. They also allow the financial system do larger transactions without endangering individual institutions.
“I believe the factors driving increased appetite for loan syndication in Nigeria is the enhanced capacity of our banks and economic reform and growth spurring corporate expansion,” Agbaje said.
In his opinion, Head Research and Intelligence, BGL Plc, Mr. Olufemi Ademola, loan syndication is not entirely new in Nigeria.
According to him, “While the size of the capital raised in 2012 might be large, loan syndication in Nigeria is not entirely a new phenomenon. MTN Nigeria and the Dangote Group have constantly used syndicated loans through a combination of local and international financiers to raise their usually large capital needs. Lafarge WAPCO also used syndicated loans from local banks in the early 2000’s to finance the expansion of its Ewekoro plant.”
Ademola explained further that,“The increase in size and number of structured loans in Nigeria is justified since Nigerian banks are prevented from unreasonably large exposure to a single borrower through the “single obligor limit”. They are able to underwrite these large loans through a syndication of several banks. In addition, since most of the banks are not looking at the retail credit market for now, the competition in the large corporates segment of the market would most likely encourage loan syndication. And since the primary market for equities is not yet back firmly, the structured finance market remains a viable alternative.
“The implication is positive for the country in general and the banking system specifically. Rather than competing against each other, the banks will now collaborate to finance large ticket transactions and share the income. In addition, the involvement of several banks with different strength in risk management could help to reduce the occurrence of bad loans; thus preventing losses to the banks, the investors and the public in general.”
He recalled that “The credit ratings for Nigeria has been upgraded by most rating agencies to positive from stable; hence the macroeconomic risk is low and stable. This strong risk outlook would also rub-off on businesses in Nigeria. Therefore, they would be able to attract financing locally and internationally for their activities. The focus on infrastructure development, power, roads and rail would help business activities and continue to enhance the demand for Nigerian businesses. No doubt, if the macroeconomic indicators remain stable, funds requirements by proven Nigerian businesses would be partly met by available liquidity open to potential Nigerian borrowers.
Nigerian banks have traditionally been rare borrowers in the loan market; Skye Bank became the first to break from the past since 2008 when it agreed a $150 million debut in May last year, while Fidelity Bank recently agreed an oversubscribed $100 million debut deal through coordinators Citigroup and HSBC.
The deal’s success is expected to buoy appetite from fellow bank borrowers, with First City Monument Bank expected to return after a four-year hiatus and Skye Bank already eyeing the market for a speedy return.
“Nigerian banks have been through their reshuffle and I think there is a bit more trust and transparency from the banks than there previously was,” a second London-based banker said.
Analysts said the recent banking sector reform, which has continued to keep operators on their toes, is largely responsible for the growing confidence of international banks in the Nigerian economy. They also pointed out that the increasing transparency and the rapid growth of strong parent companies — South Africa’s MTN Group for MTN Nigeria’s multi-billion deal, for example, means more international banks are opening up their books to cash in on what is considered a huge potential market.
“Nigeria is a big economy and it poses as a very good window for investors to get started on the continent, which will benefit the whole of Sub-Saharan Africa,” a third London-based banker said.
Demand for Funds
That growing demand for funds will be partly met by a vast increase in available liquidity open to potential Nigerian borrowers.
“It is not just four international banks in Nigeria any more, consisting of ABSA, Citigroup, Standard Bank and Standard Chartered. There are at least 15 strong international banks that are keen to do deals now,” a fourth London-based banker said, citing French lenders such as Societe Generale and Natixis.
Japanese banks Bank of Tokyo-Mitsubishi UFJ, Mizuho and SMBC are also beginning to show an interest in Nigeria’s loan market, while South Africa’s Investec Bank, Nedbank and Rand Merchant Bank are increasingly active.
Despite the increasing desire to undertake deals in Nigeria, international lenders, particularly those with little or no historical presence in the country, have to adhere to strict credit and country risk criteria, as well as higher pricing.
Interest margins are expected to hover around 400 basis points, in line with the 375 basis points margin on NNPC’s $1.5 billion deal in January.