News Column

Power Reform Pushes Nigerian Banks to Debt Market

May 21, 2014

Obinna Chima

The desire to actively finance the activities of investors in the power sector has driven a lot of Nigerian banks to the debt market.

The search for long-term capital by the banks is to support the long-term financing needs of most firms that acquired the generating and distribution companies in Nigeria.

THISDAY checks showed that while some banks have already raised the amount of capital they need to support their clients from the Eurobond market, the rest are still weighing other available capital raising options.

For instance, Zenith Bank Plc last month sold its debut $500 million dollar-denominated bond. The bank had explained that the proceeds would, among other things, enable it finance the power sector.

Similarly, Diamond Bank Plc last week issued its debut $200 million five-year Eurobond. The bank also plans to tap the equities market to raise about $300 million. Diamond Bank is seeking to raise $500 million additional capital.

On the other hand, while Union Bank is seeking approval to raise $750 million, Access Bank at its recently held Annual General Meeting got the approval of its shareholders to raise $1 billion. But the bank has explained that the $1 billion would not be raised at once and it is still weighing various capital raising options.

Also, Sterling Bank recently disclosed plans to issue a $200 million Eurobond early next year, while Skye Bank which raised N50 billion last year is also eyeing the Eurobond market.

Other banks that had also tapped from the Eurobond market include Fidelity Bank, Guaranty Trust Bank Plc and First Bank of Nigeria Limited.

Despite the fact that the federal government last year sold 15 power generation and distribution companies, power supply in the country has remained epileptic.

The Managing Director/Chief Executive Officer, Citibank Nigeria Limited, Mr. Omar Hafeez explained that the fund raising by banks is driven by the search for long-term dollars, saying that deals in the power as well as oil and gas sectors require long term funding.

"Traditionally banks have short-term deposits. So, if they want to lend long-term, if they use their current stocks of dollar, then it is a mismatch because that is short-term dollars and long-term loans.

"So, they try to lengthen the amount of liquidity they have. The second reason is capital. They need tier-11 capital in order to support their balance sheet," he added.

Hafeez described capital market as the deepest source of liquidity in the world, adding that another advantage of going to the capital market is that it helps financial institution to benchmark their rating.

"Remember, you can't go to the international capital market without meeting very high standards of governance," he said.

On his part, London-based Emerging Markets Strategist at Standard Bank, Mr. Samir Gadio noted that Nigerian banks would become regular players in the Eurobond market in coming years.

"They will need to raise more funding for the financing of power, oil and gas and infrastructure projects," he added.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: AllAfrica

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