Posted on 3:29 AM
The merger arrangement between IBTC Chartered and Stanbic Bank was the engaging issue in the nation’s capital market last week. The much awaited merger between Stanbic Bank and IBTC Chartered Bank sail through after all despite the initial unwillingness of shareholders to relinquishing their shares in the latter for the South African banking group to secure 50.1 shares of IBTC through the tender offer.
About 6.25 billion ordinary shares of IBTC Chartered currently priced at N11 per share on the stock exchange are being offered at N16 per share by way of “tender offer” to Stanbic Bank, as a result of the merger deal.Out of the shareholders’ holding of 6,530,958,957 ordinary shares in the bank that voted, 6,526,958,957 ordinary shares voted in favour of the merger, representing 99.94 per cent.Announcing the result of voting by shareholders, Chairman of IBTC Chartered Bank, Chief Olu Akinkugbe, said, a report on the result would be filed at the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission for approval. He added that “once the approval is received on the scheme, a copy of the result would be submitted to the Federal High Court and if all the conditions are met, we expected the Federal High Court to sanction the merger for it to become effective.
Summary of the deal:
In September, 2006, Standard Bank of South Africa through Standard Africa Holdings Limited, signed a Memorandum of Understanding (MOU) for the proposed merger of Stanbic Nigeria and IBTC. As precondition for the deal, the transaction was structured to provide Standard Bank with a controlling stake of between 50.1 per cent and 55 per cent in the merger entity. The primary aim of the merging entities is to create one of the leading banks in Nigeria with a significant capital and asset base, offering a full range of financial products and services. It is expected that the proposed merger will leverage on the capabilities and skills of IBTC and the larger Standard Bank Group, which owns Stanbic Nigeria. Also, the capital base of the post merger IBTC should increase its competitiveness and enhance its chances of emerging as one of the leading banks in Nigeria. Stanbic will pay N50.3 billion to IBTC shareholders. This amount which excludes regulatory charges borne by Standard Bank is said to be the largest shareholders payout in the history of the Nigerian capital market.
How the Merger was Structured:
Standard Bank offered to buy the shares at N16 per share which is a 45 per cent premium to the market price of N11 a share. The tender offer price of N16 also represents a premium of 278 per cent to IBTC’s share price of N5.76 recorded September 22 2006, the date the MOU for the merger deal was signed. The promoters of the deal want the market to believe that the price is well in excess of the average percentage increase in the share prices of many banks over the same period. IBTC at present has 12.5 billion issued shares held by various individuals and institutional shareholders. Under the terms of the merger, 6.250 billion newly issued shares of IBTC shares will be allotted to Standard Bank in exchange for the transfer of Stanbic into the merged entity. This translates into 33.3 per cent stake for Standard Bank in post-merger IBTC. Accordingly, Standard Bank requested that every IBTC shareholder should tender one out of every three shares they own. This will ensure that there are sufficient tendered shares for it to achieve the minimum target of 3, 143, 750, 000 shares, which will give it the desired 50.1 per cent shareholding in IBTC.
Posted on 2:34 PM
Consolidation started in July 2004 when the CBN announced a 13 point reform agenda for the banking sector, it stirred a lot of debate from the skeptics, cynics and optimists. Many agreed there was need for reform in the financial sector which was already on-going, but not so many agreed with the lead strategy of the 13 point agenda which was seen as an administratively “forced consolidation” The most important and far reaching item of this was the proposal to increase bank’s shareholders funds to a minimum of N25 billion by December 31, 2005. As at them, the authorized capital for commercial banks in Nigeria was N1 billion and plans were on to raise the capital to N2 billion in two years. Anyway, by the end of recapitalization deadline 69 banks merged into 19 consolidated banks and six banks stood on their own having been able to successfully raise their capital to N25 billion. Sadly, 14 banks that were not able to meet the consolidation deadline had their licenses withdrawn and were liquidated. Some shareholders of the liquidated banks have challenged the exercise in court. Today the gain of the consolidation exercise is manifest and 25 big and internationally active banks emerged. Nigerian banks are now listed on foreign stock exchanges and rated among first 1000 and first 500 banks in the world. The banks are the blue chips, they routinely top the gainers chart, dominate the market deals and are rightly the toast of investors both local and foreign. Today the skeptics and the cynics appear totally silenced while the supporters are in euphoria in euphoria.
The now bigger and consolidated banks were also expected to lend at highly reduced interest rates. However, months after the conclusion of banking consolidation, interest rates in banks have remained high at between 18%p.a. to 22%p.a. Indeed, in early 2004, the former CBN Governor, Chief Joseph Sanusi, had brought bank lending rates to 17.5%p.a. The existence of high interest rates in Nigeria now or in the past is not the fault of the banks. The country is hopelessly deficient in the provision of basic infrastructure such as power supply.Thus for CBN to expect banking consolidation to now force banks to lend at an interest rate Banking of 10% p.a. is to live in a fool’s paradise.. The structure of output in which oil and agriculture accounted for over 60 per cent share of the GDP still subsists. Manufacturing used to account for uninspiring 5 per cent of GDP before consolidation, now it is less than 4 per cent. Three economic sectors - oil, agriculture and wholesale trade- account for more than 80 percent of GDP, all the other sectors including the priority sectors of manufacturing, solid minerals, tourism, still account for less than 20 percent of GDP. This structure of output, in spite of consolidation, calls for grave concern not jubilation. It is not in line with the 20-20-20 dream.The growth that comes from this structure of GDP holds little prospect for economic development even if that growth rate were 20 per cent. Neither bank consolidation nor other public sector policies are responsible. ordinary men on the street are yet to see the gain of the banks consolidation and the benefits to the real sector- Nigerian economy. It is difficult to see the difference in the real sector Nigeria economy before and after consolidation. Nigeria economy was primitive and driven by primary production Any economy which performance is not driven by improved knowledge and technology giving rise to wide spread productivity gains and value-addition especially in manufacturing and services cannot meaningfully reduce poverty.
Therefore the real benefit of the current beauty of bank consolidation can only be seen when the financial sector promotes investment in the real sector Nigerian economy that can lead to economic transformation. By the bank consolidation strategy the CBN has taken a position in the long debate as to whether the financial sector follows or leads development. The consolidated banks must now prove that banks lead and not follow development. They must not now wait for opportunities to invest, but aggressively create those opportunities within the real
sector Nigerian economy so as to justify their leadership role and the cost of consolidation including lost (or hopefully locked up) deposits by many Nigerians.
Posted on 11:54 AM
The Nigerian government Friday in Abuja suspended the new policy on the national currency- the Naira, announced by the Central Bank of Nigeria on August 14, saying the move still lacked presidential approval. Minister of Justice and Attorney-General of the Federation, Michael Aondoakaa, announced the suspension of the new Naira policy move in Abuja.The new policy had been announced by Central Bank governor Charles Soludo, under which the Naira would be set at a rate of 1.25 Naira to one US dollar starting August 1, 2008.
Under the move, aimed at making the Naira the currency of choice in transactions in the West African sub-region, the Naira would be redenominated, knocking off two zeros and setting the highest denomination at 20 Nairas. But the move came in for criticism from various quarters afterwards, with the Federal Executive Council (FEC) immediately seeking that the new Naira police be sent for review by the country's Economic Management Team for "fine-tuning,".The organised labour in the country expressed fears that there would be an inability to ensure there would be the corresponding adjustment of prices of commodities which could lead to the failure of the proposed re-denomination.
Aandokaa explained that the apex bank's boss contravened Section 19 (1), sub-section 1 and 2 of the CBN Act, which requires that any matter dealing with issuing new currency and coins must be with the approval of the President. Therefore, the actions must abate. All actions of the CBN in the re-denomination must be in accordance with the CBN Act. So, until an approval is sought for and obtained in writing from the President, all actions on the re-denomination must stop," he stated.
Tag: Goverment,Naira,Policy,Re-denomination,Banking,Currency
Posted on 1:22 PM
LAST week, a major decision took place in the Nigerian monetary system, as Naira would be going through a revaluation process in a year's time.The revaluation process is a comprehensive and revolutionary reworking of the Nigerian economy that will return the Naira to its pre-1986 value.Under the new strategic plan as announced by the Governor of the Central Bank of Nigeria (CBN), Prof. Chukwuma Soludo, the Naira would be re-aligned to the pre-Structural Adjustment Programme (SAP) regime of 1986 when it was at par with the United States dollar.
Soludo stated the legion advantages of the plan:
-To better anchor inflationary expectations, strengthen public confidence in the Naira,
-Reverse tendency for currency substitution
-Eliminate higher denomination notes with lower value
-Reduce the cost of production, distribution and processing of currency
-Promote the usage of coins and thus a more efficient pricing and payments system, and lay the foundation for the convertibility of the Naira as well as make it the 'reference currency' in Africa.
Apart from re-strengthening the Naira, the governor said that the new agenda, which was the second phase of the financial sector consolidation, would assist in inflation control. The new plan is to form the basis of wages, Naira assets, prices and contract regimes in Nigeria.Defending the plan, Soludo said: "The thrust of the agenda focuses on the Naira as our national currency to realign its denomination, ensure its stability and global integration".These will help to deepen the reforms of the financial system and national economy and make the Naira the currency of reference in Africa, thereby facilitating our quest for international financial status.
"The new focus is an extension our previous currency redesign and re-issuance of the lower denominations and attempt to re-introduce coins.
"Our goals were to redesign the currencies after 23 years (contrary to the international notion of currency redesign after six to eight year), drive down the cost of currency printing and experiment with the polymer substrate. Our objectives are largely achieved and we have learnt a lot from the exercise," he said.
Soludo added further that the new policy followed the new mandate by the CBN Act (2007) to monetary and price stability.Its also informed by the vision articulated under the FSS 2020, it has become imperative for us to evolve a more comprehensive strategy for the Naira as a reference currency.On the apex bank's new focus on inter-governmental relations, the governor said that the new CBN Act did not permit CBN to grant ways means of advances to government exceeding five per cent of previous year's revenue provided such financing was retired before end of the financial year."Indeed, the CBN is not positively disposed to granting any ways and means advance," he said.
The policy, he said, "follows our vision for a Naira that will be the currency of reference in Africa."He explained further: "We intend to restructure the entire currency by dropping two zeroes or moving two decimal points to the left from the currency and issuing more coin denominations."This would entail a total currency exchange and phasing out of all the existing denominations from August 1, 2008. "Effectively at the current exchange rate, this policy would mean that the Naira/U.S. Dollar exchange rate would be around N1 to $1 then. All Naira assets, prices and contracts will be re-denominated by dropping two zeroes or two decimal points to the left with effect from this date," he said.
The apex bank boss explained further that the plan would effectively restore the value of the Naira (in short term) close to what it was in 1985 before the commencement of SAP in 1986.
He added that the African Union had granted Nigeria the right to host the headquarters of the African Central Bank when the common currency in Africa materialises.
"We must, therefore, lead the way in terms of properly aligned currency structure and sound monetary policy framework," he said.
The challenge with this policy is "How do we at least, change the exchange rate on a production driven basis? How do we get the exchange rate to a level where one hundred Naira is exchanging for one dollar so that even if this cosmetic thing takes place in August next year, as they said, we will be exchanging N1 for $1?
Tag:Revaluation,Currency,Nigeria,Exchange rate,CBN,Policies
