Moody’s Investors Service says the merger between tier-one lender Access Bank Plc and Diamond Bank will be “credit positive” for the overall Nigerian banking system.
This is because, according to the global ratings agency, the merger would limit the threat of contagion of Carlyle-backed Diamond bank’s relatively weak credit profile to the banking system of Africa’s largest economy.
In a separate report, Moody’s assigned a long-term local currency deposits ratings of ‘B2/Not Prime’ to Access Bank.
”Access Bank’s b2 standalone profile reflects its strong asset quality metrics and robust loan underwriting standards and risk management processes, large local currency liquidity buffers, and resilient capital buffers, ” Moody’s said.
“These strengths are balanced against Nigeria’s still challenging operating environment which negatively affects banks’ asset quality and revenue growth, and concentration risks in the bank’s loan book, including its exposure to loans denominated in foreign currencies.”
Moody’s had downgraded Diamond’s credit rating to junk late last month, citing the bank’s weak solvency and liquidity metrics as well as corporate governance tensions as factors considered for the downgrade.
Moody’s somewhat benign outlook for the merger between Access and Diamond could spark a further rally in the latter’s $200 million Eurobond and an uptick in the share price of the former which closed lower at N7.05 per share Friday.
Yields on Diamond’s Eurobond were down to 20 percent Friday according to FMDQ data, from as high as 31 percent pre announcement of the merger, as investors are less concerned over the possibility of a repayment default.
The bond price has also sustained a steady march upwards, rising to 95.59 from 93.33 Monday and a record-low of 90 in November. The bond presents an opportunity for investors to make profit as the price nears its par value of 100.
During a conference call Wednesday, Uzoma Dozie said proceeds from the sale of the bank’s UK unit will help repay the loan and that arrangements have been made for full settlement.
Yields on the Eurobond spurn out of control after S&P, Moody’s and Fitch all warned of a default risk, saying they had little optimism that the bank would be able to raise enough money from the sale of
its UK unit in time to repay its dollar obligations.
Access and Diamond announced a merger Monday, in a deal that sees Access buy the retail lender for some N72 billion in cash and shares.
Access said in a statement that it emerged the preferred bidder after a competitive process undertaken by the Board of Diamond Bank.
The deal involves Access Bank acquiring the entire issued share capital of Diamond Bank in exchange for a combination of cash and shares in Access Bank via a Scheme of Merger.
Based on the agreement reached by both parties, Diamond Bank shareholders will receive N3.13 per share, comprising a cash consideration of N1.00 (one Naira) per Diamond Bank Share representing a total cash amount of N23.16 billion (US$ 75.58 million).
The offer represents a premium of 260 percent to the closing market price of N0.87 per share of Diamond Bank on the Nigerian Stock Exchange as of December 13, 2018, the date of the final binding offer.
Diamond shareholders will also be allotted roughly 6.6 billion new Access Bank ordinary shares, representing 2 new Access Bank ordinary shares for every 7 Diamond Bank shares.
The completion of a transaction is subject to formal regulatory and shareholder approvals but a deal could be sealed by the second quarter of 2019, according to Herbert Wigwe, CEO of Access Bank.
LOLADE AKINMURELE
