At high tide, Di­a­mond Bank’s swim­ming against the cur­rent

Business a.m. - - NEWS - Moses Obajemu, with agency re­port

BANK PLC has been in the news for the wrong rea­sons in re­cent times.

The neg­a­tive news about the bank is cer­tainly not the kind of news in­vestors want to read.

In Jan­uary this year, the bank’s stock was trad­ing at N3.57. To­day, it is less than one naira, an in­di­ca­tion of bad times for the bank.

At a point, the bank’s 1oo mil­lion shares were on of­fer at the na­tion’s bourse but no in­vestors wanted to touch them.

The bank’s tra­vails started when news of ris­ing im­pair­ments on loans be­gan to fil­ter to the Nige­rian pub­lic.

A for­mer man­ag­ing di­rec­tor of the bank who is now a politi­cian, Alex Otti, re­cently lamented over the man­age­ment’s poor han­dling of the in­sti­tu­tion, thereby fur­ther putting the bank un­der the search­light. As if that was not enough, four di­rec­tors of the bank, in­clud­ing the then re­cently ap­pointed chair­man, Oluseyi Bick­er­steth, sud­denly quit their po­si­tions in the sec­ond quar­ter of 2018 amid dif­fer­ences with the man­age­ment, al­though they cited the im­pend­ing ar­rival of new in­vestors as rea­son. Months af­ter, no new in­vestor has been found.

It would be re­called that Global al­ter­na­tive as­set man­ager, The Car­lyle Group, in­vested $147 mil­lion in Di­a­mond Bank in 2014. The in­vest­ment which came through the bank’s $305 mil­lion rights is­sue, was meant to strengthen it and make it one of the in­dus­try lead­ers as it was ex­pected to strengthen both its balance sheet and sup­port the bank’s con­tin­ued growth plans.

“This in­vest­ment is a tes­ta­ment of the bank’s strong brand and success over the years, par­tic­u­larly in the re­tail/SME space,” Uzoma Dozie, group man­ag­ing di­rec­tor and chief ex­ec­u­tive of­fi­cer, said at the time.

He ex­pressed con­fi­dence that Car­lyle’s sup­port will be fruit­ful and ben­e­fit all stake­hold­ers. “They bring global ex­per­tise in fi­nan­cial ser­vices and bank­ing, hav­ing in­vested $4 bil­lion glob­ally in over 25 fi­nan­cial ser­vices com­pa­nies, along with long-stand­ing ex­pe­ri­ence in emerg­ing mar­kets.”

In Novem­ber, one month to the end of 2018, shares of the lender have con­tin­ued to lose value and it is at an all-time low af­ter their worst month on record.

Di­a­mond Bank kicked off the month of Novem­ber with a debt down­grade by S&P Global Rat­ings. A day later, it cut its earn­ings forecast by more than half.

It fol­lowed that up within three days by scotch­ing talk of an in­vestor re­cap­i­tal­iz­ing its op­er­a­tions. By the end of the month, Moody’s In­vestors Ser­vice added to its woes with an­other rat­ing cut.

But ac­cord­ing to Bloomberg the com­pany is try­ing to fight back. The re­tail lender sold its West African op­er­a­tions about a year ago to fo­cus on Nige­ria, and is in the process of sell­ing its U.K. unit, which Stan­bic IBTC Stock­bro­kers es­ti­mates could fetch from $60 mil­lion to $70 mil­lion. It needs to se­cure that money: Di­a­mond Bank’s dol­lar obli­ga­tions next year in­clude a $200 mil­lion Eurobond and $51 mil­lion In­ter­na­tional Fi­nance Cor­po­ra­tion (IFC) loan, ac­cord­ing to the bro­ker.

“Ul­ti­mately, if we get clar­ity on the fi­nan­cial close of the sale of the U.K. en­tity, we get more com­fort in terms of un­der­stand­ing the road map for Di­a­mond Bank to meet its im­por­tant Eurobond obli­ga­tion due in May next year,” the La­gos-based bro­ker said.

Di­a­mond Bank is con­fi­dent it can meet its obli­ga­tions, the lender said in re­sponse to ques­tions, adding it is in talks with de­vel­op­ment fi­nance in­sti­tu­tions and mul­ti­lat­eral agen­cies for dol­lar fund­ing to help it meet the Eurobond re­pay­ment.

Yields on the notes have surged, jump­ing from 9.8 per­cent in Septem­ber to 31 per­cent on Fri­day.

The lender is hope­ful crude prices will re­bound, which could trig­ger loan re­pay­ments by oil-ex­plo­ration com­pa­nies, boost­ing for­eign-cur­rency liq­uid­ity. It can also rely on “a num­ber of for­eign-ex­change linked de­posit prod­ucts with medi­umto long-ten­ure, which have en­joyed success in the mar­ket, and con­tinue to gen­er­ate rea­son­able for­eignex­change flows.”

The stock closed 1.5 per­cent down at 65 kobo on Fri­day, par­ing ear­lier losses of as much as 7.6 per­cent af­ter Bloomberg’s re­port on its abil­ity to meet the Eurobond pay­ments. Still, it lost 54 per­cent in Novem­ber, the worst per­former in Nige­ria’s all-share in­dex.

Di­a­mond Bank is among the coun­try’s small lenders strug­gling to re­cover from a 2016 con­trac­tion that hit com­pa­nies and caused bad debts to soar.

“There are is­sues with man­age­ment and the way the bank is be­ing run,” Robert Omo­tunde, a bank­ing eq­uity an­a­lyst at Afrin­vest West Africa Ltd. said by phone from La­gos, adding it still needs to deal with a non­per­form­ing loan ra­tio of 12.6 per­cent in the third quar­ter.

“For a bank that is barely trad­ing at 10 per­cent of its book value, it tells you that sen­ti­ment is not in its favour,” he said, but it might just be trad­ing at lev­els that may en­tice in­vestors.

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