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