American firm plans $1b investment in Unity Bank

American firm plans $1b investment in Unity Bank

By Tunde Osho  (with agency reports)

Struggling Nigeria’s Unity Bank is set to get $1 billion investment from New York based Milost Global Inc. to recapitalize after it suffered a slowdown during the recession; this is according to two people familiar with the matter.

Bloomberg reports Milost offered to invest $700 million in equity and $300 million in five-year bonds that can be converted into shares in the Nigerian lender, said one of the people, who asked not to be identified as talks are confidential. The private-equity firm will get an initial stake of about 30 percent in the Lagos-based bank in exchange for its first equity investment of $250 million, the person said.

The transaction is still subject to a due diligence as well as regulatory approvals, the people said. The first part of the deal may be completed in the second quarter, one of the people said. The rest of the cash will be drawn down in intervals over a period of four years, provided Unity Bank has sufficient shares to issue to Milost, one of the people said.

Some small- and mid-sized Nigerian lenders are battling to rebuild capital levels after a slump in oil prices triggered a foreign-currency shortage and a contraction in the country’s economy in 2016 made it difficult for businesses to repay loans. Unity Bank, which was formed out of the merger of nine banks between December 2005 and March 2006, said in April last year that it is in talks to sell its non-performing loans to avoid penalties after missing a deadline set by regulators on its recapitalization plans.

Nigeria’s banking regulator allows lenders to count certain classes of debt and equity among the buffers that they need to set aside to survive market turmoil without causing risk to the financial system.

An investment in Unity Bank will be Milost’s third in a publicly traded Nigerian company since it agreed to pump $350 million into oil-services company Japaul Oil & Maritime Services Plc in February and to provide a $250 million financing facility to Resort Savings & Loans Plc. Several calls to the numbers listed on Milost’s website have gone unanswered.

The transaction comes as the economy of Africa’s largest oil producer shows signs of recovering from a recession after three straight quarters of expansion in gross domestic product, which the International Monetary Fund estimates will grow 2.1 percent this year.

Net income at Unity Bank slid almost 54 percent to N2.18 billion ($6.1 million) in the 12 months through December 2016, with assets of N493 billion, according to the company’s latest annual report. Its NPLs stood at 48 percent in 2016, when it reported its second straight year of negative capital adequacy ratios, the report showed. The stock has gained 10 percent this year, giving Unity Bank a market value of N15.8 billion.

Capital adequacy ratios across the banking industry worsened to 11.51 percent in June from 14.78 percent a year earlier, according to the Central Bank of Nigeria.