Access Bank which announced the acquisition of Diamond bank to create Nigeria’s largest banking institution will launch a subordinated rights issue of about $200m to keep its capital well above regulatory requirements, bankers working on the deal told the Financial Times.
Access Bank reached an agreement in principle on Sunday o buy Diamond Bank in a deal that values Diamond at just over $200m, creating Nigeria’s biggest bank by both deposits and assets.
The acquisition, which is subject to shareholder and regulatory approval, would bring to an end Carlyle Group’s troubled investment in Diamond after the US private equity group bought nearly a fifth of the bank for $147m in 2014.
Since then, Nigeria’s oil-dependent economy has fallen into near-permanent recession and Diamond’s share price has fallen about 90 per cent as its commercial loan book has deteriorated. The bank is heavily exposed to the struggling oil and power sectors.
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“They have their own legacy issues and a loan book that was not properly managed,” said Herbert Wigwe, chief executive of Access Bank, who will head the merged entity.
Diamond would cease to exist, bankers said, though its logo is expected to remain. Uzoma Dozie, Diamond’s chief executive, will resign but other senior executives are set to stay.
Mr Wigwe said Diamond would write off all its bad loans before the merger goes through. “We won’t have new bad loans coming to the enlarged entity,” he said. The new bank would have a customer base of 27m, including 12m with mobile accounts, making it Africa’s biggest bank by customers, he added.
Access offered N3.13 a share for Diamond, against a recent price of just N0.87. It will pay N1 a share in cash and swap two new Access shares for every seven Diamond shares.
Although the multiples were extremely high, bankers said, the size of the offer was relatively low because of Diamond’s distressed position.
Last month, Diamond shares fell more than 50 per cent after downgrades by both Moody’s and Standard & Poor’s. Diamond subsequently announced it was selling its UK arm and withdrawing from international banking.
People close to the transaction said there would be substantial synergies. As many as 100 of the banks’ combined 650 branches could be shut with more than 1,000 of the merged entities’ 6,800 staff expected to lose their jobs, they said. However, it is extremely difficult to close bank branches in Nigeria.
Nigeria’s banking sector has been hit by lower oil prices, with non-performing loans across the sector averaging almost 15 per cent. Local lender Skye Bank collapsed in September.
Dipo Salimonu, a well-informed observer of Nigeria’s financial sector, said that Carlyle’s investment in Diamond would not help investor confidence.
“The transaction world is looking at that deal with a raised eyebrow and wondering what this means for investment in Nigeria generally,” he said.
Miguel Azevedo, head of investment banking for Middle East and Africa at Citibank, which advised Access, said the combination of Access’s strong management and Diamond’s broad retail franchise would “allow for synergies that will make the combined entity achieve very strong returns on equity”.
Fabrizio Ferrero, co-head of global investment banking at Exotix Capital, which advised Diamond, said the merged entity would be a leader in mobile banking.
Diamond runs its mobile banking with South African telecoms provider MTN, while Access has a deal with Airtel. “Scale is becoming very important and that’s what’s driving consolidation,” he said.
Bismarck Rewane, chief executive of Lagos consultancy Financial Derivatives, said the merger was good for shareholders. But he said that Access, which has been on an acquisition spree, might struggle to digest another bank.
David Pilling, FT Africa Editor, in London
