Recapitalisation race: Top banks target $3bn fund in foreign capital markets

FBN Holdings, Access Holdings, Guaranty Trust Holding Company Plc, and United Bank for Africa Plc—four of the nation's tier-1 banks—have announced intentions to raise around $3.03 billion (N3.46 trillion) in new capital.

This occurred just one month after Deposit Money Banks were instructed to recapitalize by the Central Bank of Nigeria.

The four tier-1 banks declared their intentions to raise money on Sunday from the local and foreign stock markets.

At least two of the financial institutions, Access Holdings stated it will raise capital in US dollars and naira, and FBN Holdings and GTCO said last week that they intended to raise additional cash.

FBN Holdings said that it would be asking shareholders for permission to raise an additional N300 billion in capital in a notice of its Extraordinary General Meeting filed with the Nigerian Exchange Limited.

The notice states that the special business "that the company be and is hereby authorised to undertake a capital raise of up to N300,000,000,000.00 (three hundred billion naira)" will be discussed and put to a vote by shareholders.

The banking institution plans to raise the money on the Nigerian or global capital markets through a rights issue, private placement, or public offering.
The fund will be raised, according to a notice from GTCO, "through the issuance of securities comprising ordinary shares, preference shares, convertible and/or non-convertible notes, bonds or any other instruments, in the Nigerian and/or international capital markets, either as a standalone issue(s) or by the establishment of capital raising program(s), whether by way of public offerings, private placements, rights issues and/or other transaction modes, at price(s), coupon or interest rates determined through book building or any other acceptable valuation method or combination of methods, in such tranches, series or proportions, within such maturity periods and at such dates and upon such terms and conditions as may be determined by the board of directors of the Company (the Board), subject to obtaining the requisite approvals of the relevant regulatory authorities.”
In a similar vein, Access Holdings plans to start a capital raising programme to raise money in US dollars and Nigerian naira.

Access Holdings stated that it was considering raising $1.5 billion through the sale of shares or a bond offering in a statutory notice that was submitted to the NGX. The parent company of Access Bank announced that, during its upcoming Annual General Meeting later this month, it would also request permission from current shareholders to raise N365 billion through a rights issue.

Planning to generate more capital to satisfy the new regulatory threshold was also disclosed by the United Bank for Africa.

The banking firm stated in a statement released late on Sunday that it is aggressively looking into a clear plan to increase its capital base and guarantee compliance within the regulatory time frame.
"This strategy may include a combination of options such as Rights Issue or Private Placement," stated Oliver Alawuba, Group Managing Director and Chief Executive Officer of UBA, in the announcement. The reality remains that we will update investors on our progress and maintain our confidence in our capacity to achieve the CBN's capital adequacy standards.

The banking firm plans to raise approximately $200 million from the global capital market in addition to an undisclosed sum from the local market in a subsequent investment round. This week, a statement from the bank is anticipated in this regard.

Wema Bank

Tier-2 bank Wema Bank stated at the time of this report that it has raised N40 billion through its rights offering and is awaiting regulatory approval.

"Accelerate its capital management plans and ensure we embark on the journey to raise the required capital as quickly as possible," declared Moruf Oseni, the MD of the bank.

As part of its N30 billion debt issuance programme, Sterling Bank Limited recently raised N21 billion through Sterling Investment Management SPV Plc.

Zenith Bank announced on Friday that it would be requesting permission from shareholders to create additional shares in order to enhance its issued share capital from N15,698,246,893.50 to N31,396,493,787. The existing capital is divided into 31,396,493,787 ordinary shares of N0.50 Kobo each.

The company has not disclosed the amount of extra money that it hopes to raise through the issuance of new shares. It was noted, meanwhile, that the capital raising programme is intended to take place on both the international and Nigerian financial markets.

As per Afrinvest Capital Limited, the issuing company, the offer commenced on March 27, 2024, and concluded on Monday, April 8, 2024. The money raised will be used to buy Sterling Bank Limited's 10-year notes.

The CBN announced the revision of the capital requirements for the operations of the impacted categories of banks in the nation in a circular sent in late March to promoters of new banks as well as commercial, merchant, and non-interest banks.

In a statement signed by its Acting Director, Corporate Communications, Sidi Ali, the top bank cited both internal and international shocks as the reason why raising the banks' capital bases was now required.

As a result, the CBN ordered national and commercial banks with international authorization to raise their capital bases to N200 billion and N500 billion, respectively, while regionally authorised institutions are anticipated to reach a N50 billion capital floor. Likewise, non-interest banks that hold national and regional authorizations must raise their capital to N20 billion and N10 billion, respectively.
"For Existing Banks a. The Minimum Capital Specified Above Shall Comprise Paid-Up Capital and Share Premium Only," the apex bank circular stated. To be clear, the Shareholders' Fund will not be the basis for the new capital requirement. b. In order to satisfy the new criterion, Additional Tier 1 Capital will not be accepted. c. The minimum capital requirement must be met by all banks during a 24-month period that starts on April 1, 2024, and ends on March 31, 2026. d. Banks must strictly adhere to the minimum capital adequacy ratio requirement relevant to their licence permission, even in light of the capital increase. a. In compliance with current rules, banks that violate the CAR requirement must inject new capital to regularize their position.”
The CBN stated that the minimum capital requirements for the proposed banks would be paid-up capital, and that this requirement would apply to all new applications for banking licences that are submitted after April 1, 2024.

According to a study, 26 banks—commercial, merchant, and non-interest banks—are expected to raise around N4 trillion in new capital over the course of the next 24 months.

Analysis revealed that 12 financial institutions had approximately N4.8 trillion in retained earnings, including Access Holdings, FBN Holdings, FCMB Group, Fidelity Bank Plc, Stanbic IBTC, Zenith Bank Plc, United Bank for Africa, Sterling Financial Holdings, Guaranty Trust Holding Company Plc, Wema Bank, Polaris Bank, and non-interest bank, Jaiz Bank. However, the CBN directive prevents these institutions from adding this amount to the capital base.

Ambrose Omorodion, a capital market specialist, claims that the financial institutions' attempts to raise cash could dilute the companies' earnings and shareholding arrangements.

In order to accommodate the additional investors, he said, they will manufacture extra shares.

Omorodion stated that the financial institution would need to enhance its performance in order to address this issue and provide value to stakeholders.

"The capital raising is going to dilute the banks' earnings and shareholding structure unless they double their performance to justify their price to shareholders," he declared. Overall, this process offers prospects for financial gain.

The current recapitalization efforts have not seen many discussions about mergers and acquisitions thus far since Omorodion stated that small banks were the most likely to take that option into consideration.

"Tier-2 banks will undergo mergers. In order to expand their operational base throughout the nation and abroad, the larger banks will probably target the smaller banks, he said.

According to Tajudeen Olayinka, a stockbroker and investment banker, "I think most of them may opt for mergers but the big ones would be able to find their way or even acquire some of the small ones," she expressed similar thoughts.

"They (smaller banks) have the option to combine with larger ones, and some of them may decide to do so. That is probably going to occur. We may even see some investors outside of the banking space come in to also acquire them. Some big-time investors are interested in coming into the space and giving the banks the required capital, just to make sure that they meet the required capital but that would be dependent on the leaning of the core investors in those banks.”
Nonetheless, Fitch Ratings noted in a study published on its website on April 10 that small banks would find it difficult to reach the new cutoff.

Increased M&A may result from certain small and medium-sized banks' difficulties in raising the required capital. According to FitchRatings, this would lead to a more consolidated banking industry with higher entry barriers, larger economies of scale, and stronger long-term profitabil