Nigeria's Amcon to Sell $16.6 Billion of Bonds to Fund Toxic Debt Purchase

The state-owned Asset Management Corp. of Nigeria, or Amcon, said it plans to sell 2.5 trillion naira ($16.6 billion) of three-year, zero-coupon bonds to finance the purchase of toxic debts from banks.

The first tranche of the bonds will be sold by Dec. 31, the company’s managing director, Mustafa Chike-Obi, said in an interview in the commercial capital, Lagos, today. Most of the bonds will be sold by the end of March next year, he said.

The debt purchases will help the banking system, which almost collapsed in 2008 after extending billions of dollars in loans to investors in the stock market, to resume lending to companies and revive economic growth. The central bank fired the chief executive officers of eight lenders last year and bailed out the industry with $4.1 billion.

The market will determine the value of the zero-coupon bonds and therefore, how much Amcon raises in funds, Chike-Obi said. The central bank said in a statement on Nov. 9 that Amcon would buy 2.2 trillion naira of bad debts from the banks, more than a previous forecast of $10 billion naira.

When the bonds expire in three years, Amcon will sell seven-year, coupon-bearing bonds, Chike-Obi said. The company’s major activities will be concluded within 10 years, he said.

Valuation

Amcon valued loans backed by shares in listed companies at about a 60 percent premium on the 60-day average price of those shares as of Nov. 15, Chike-Obi said.

The reason for the premium was because shares are probably undervalued at the moment, he said. Nigerian banks are trading at 1.2 times their book value, the difference between a company’s assets and liabilities, compared with a historical average of 2.

“So the valuation derives from trying to get the 1.2 close to 2 times book,” he said. “We think it’s fair, it’s consistent, it’s transparent.”

Amcon is acquiring all loans for share purchases provided by Nigeria’s 24 banks and the non-performing loans of the rescued banks, Chike-Obi said.

To contact the reporter on this story: Vincent Nwanma in Lagos at vnwanma@bloomberg.net

To contact the editor responsible for this story: Philip Sanders at psanders@bloomberg.net

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