PAC Capital Holdings presently operates in about 25 African countries where it has active transactions and clients. How did it achieve these feats? TELIAT SULE and CHIJIOKE ONYEOGUBALU, in this exclusive interview, engaged HUMPHREY ORIAKHI, Managing Director, PAC Capital Holdings Limited. Excerpts:
Could you give us a general overview of the investment banking space in Nigeria and the role PAC Capital plays?
Investment banking is broad, and it could be seen from different perspectives including securities trading and asset management. What most people see today as investment banking is what you will find in capital market activities. More so, Investment banking in Nigeria may differ from what is obtainable elsewhere and could be carried out using different models. There are venture capitalists and private equity firms also coming to play in the same space as well as firms offering advisory services and issuing house functions.
In Nigeria, we can group investment banks into two groups: those that are affiliated with commercial banks or subsidiaries of banks, and those that are not owned by commercial banks. With the advent of the new regulation from the CBN, commercial banks (also known as deposit money banks) were no longer allowed to own certain subsidiaries that were not core to their functions. That led to changes in ownership structure wherein some banks adopted the “Holding” company model, which allowed them to own investment banks as subsidiaries whilst others have investment banking as part of their banking services.
The model in which non-bank affiliated investment banks practice investment banking differs from those that are bank affiliated.
PAC Capital is the investment banking and advisory subsidiary of PanAfrican Capital Holdings Limited, a proprietary investment company in Nigeria with investment across six business verticals and we are neither an affiliate of a commercial bank, nor a subsidiary of any commercial bank.
As an investment banking firm, we provide financial advisory services, project finance, trade finance, structured finance, mergers & acquisitions, issuing house services and other forms of capital raise through diverse sources, locally and offshore. We equally leverage other relationships such as venture capitalist, private equity firms and high net worth individuals. We typically do not fund transactions from our balance sheet but act as financial mediators by assisting clients to prepare documentation towards making them bankable and then source for a potential financier, locally or from offshore.
Relating to infrastructure finance, most state governments have a bias towards capital expenditure. How can you help in that regard?
Most of the states are changing in that direction but we know that before now, budgets were skewed towards recurrent. Whilst we have seen changes in some states, the issue is the implementation. We also observe from our experience with the public sector, both FG and the states, that investment bankers are not in most cases brought into the picture during some of these projects conceptualization. As a result, some of the projects did not stand the test of time because they were not properly structured before they were executed.
Infrastructure projects require a lot of planning; you must do studies-carry out feasibility studies, you also must look at the sustainability of those projects as well as their economic benefits.
Of course, in some cases, some projects may be socially driven and not profit-driven; but you also must look at how those projects will be sustainable going forward. For instance, you do not want to build a hospital and then after two years, all the pieces of equipment are worn out and you cannot replace them. So, those factors need to be considered and most of the times, we see those things are not being thought through and sometimes best practices are not put in place.
But if you have an investment banking firm like PAC Capital involved, we will ensure independence and properly review the projects holistically, ensure that the right set of contractors and professional service providers are brought in. We would equally ensure that public procurement procedures are followed and people with requisite skills are brought in especially with the various studies that are required.
Feasibility of the projection can be modelled so that, using the example of a hospital, you do not necessarily have to charge like a private enterprise but something that at the end of the day, can sustain the project for a long time.
Let’s look at the different sectors of the economy vis-à-vis your operations, which ones would you say you have benefitted the most from in the last five to seven years?
Without sounding unkind to all the various sectors, in one way or the other, all the sectors have been good but when you ask for the most, I would start from power, telecoms, financial services sector and even oil and gas, have been good.
In power for instance, we played a very key role especially during the power sector reforms and during the sale of the defunct PHCN assets. That, I would say, also brought us to the limelight.
Recall that during the sale of those assets, most of the financing for the acquisitions of those assets came locally. More than 70 percent, if not up to 80 percent, and, I would say, we were one of the firms to attract finance from outside the shores of Nigeria. Aside that, in terms of market share basis, I would say we had more than 25 percent and I can tell you how.
Before then, we had 11 DISCOs but only 10 were sold at the time except for Yola and out of the 10 DISCOs, we participated in financing the acquisition of two – Enugu and Kaduna Discos, which accounted for 20 percent. This is not even taking into consideration the advisory services we provided to other firms which also bided during the process. For the GENCOs, there were five generating companies and out of those five, we raised the financing for the acquisition of Sapele Power Plc which is another 20 percent. However, there were still other two NIPP projects; the Olorunsogo Power Plant in Ogun State, and Omotosho Power Plant in Ondo State. Olorunsogo 1 and Omotosho 1 were NIPP projects and they were not put in the basket of the PHCN assets for sale, but they were also being sold and those two were fully funded through our intervention. When I say funded, I am not saying that we as PAC Capital put money into the projects. If you look at those two, that’s 100 percent and if you put that together with the other 20 percent and take an average, it comes to about 30 percent of that market.
We have equally provided financial advisory services to various prominent and indigenous oil & gas companies including listed ones on the Nigerian Stock Exchange (NSE). We have been involved in raising more than $1 billion in the oil & gas sector.
Coming to recent activities, telecoms has also been favourable. Since the privatization of the sector and the sale of the GSM licenses, very moderate activities have happened in that sector, except for the acquisition of NITEL by NATCOM (NTEL). Nonetheless, we had the sale of 9Mobile of which we were the financial advisor and fund arranger for the acquisition of EMTS (9Mobile) by Teleology Nigeria Limited. It was one of our most interesting transactions that had seemed impossible at the time, but we were able to scale through.
We also have provided financial advisory for government institutions and various state governments. The financial sector is not left out. You would recall AMCON had about three banks mainly Enterprise Bank, Keystone Bank and Mainstreet Bank, which they took over. We raised the financing for HISL Investment to acquire Enterprise Bank from AMCON and we also acted as financial adviser to Sigma Golf consortium to acquire Keystone Bank.
We also played an advisory role for AMCON towards the setting up the bridge bank to take over the assets and liabilities of Skye Bank and subsequently capitalising Polaris Bank. These are just a few of the sectors that have positioned us as a leading investment bank in Nigeria.
What are your strengths as PAC Capital?
Our strength is our people. Anywhere in the world, human capital is key regardless of technology. You need human input to deal with them. Over time, we have always paid attention to our people. Our partnerships within and outside the country have been key and people drive partnership and collaboration. Whatever you do, people will always know you have done something. Our greatest advertisement today are the transactions we have done and all these were achieved by the people we have.
So far, how have you been able to handle competition?
Even amongst families, there is a healthy presence of competition. However, the challenge is when one continues to focus on competition leading to the possibility of inadvertently missing one’s own path or identity. For us, we have our identity and our PAC Capital DNA. We choose not to chase after perceived competition.
We see competition as partners and collaborators. In the business of investment banking, one cannot do it alone, partnerships amongst companies in this business is a common feature. Therefore, you see phrases like, “Lead Issuing House and Joint Issuing House’’ or “Lead Financial Adviser or Co-Financier Adviser.
Most offers that you see are jointly done by two or more issuing houses with each party playing different roles. So, if one continues to see competition as a source of rivalry, one would be unable to go far. Most of the times some of the investment banks out there come to us to collaborate on deals even outside the capital market.
On the Afreximbank N300bn long-term loan, what was your experience like on the projects?
On the Afreximbank N300bn Domestic Bond Issuance, it is worthy to note that this is the first time Afreximbank will be issuing a bond denominated in an African country’s local currency. They only lend in dollar ($) or euro (€) but, their primary currency is US dollar which is the currency they use in reporting their account. Before our participation in the Afreximbank deal, we had also participated in the first GDR that Afreximbank issued in Mauritius as a placement agent.
You would note that in most countries, foreign exchange risk is a major risk. But with the local currency bond, they can fund Nigerian transactions in naira instead of dollars. I will not like to say more, especially with regard to the structure and utilization until it becomes public. This for me is huge and a welcome development that they recognize the Nigerian economy, which is the biggest in Africa. So, you want to raise $1bn, $500 million etc., you will have to come to Nigeria. Overall, the experience gained while working with other advisors was phenomenal and to play a part in a transaction of this nature with the attendant potential positive impact on the economy is fulfilling.
What other countries do you operate in?
Today, we are living up to our Pan African name as we currently have active transactions and clients in over 25 African countries and our plan is to cover the entire continent, meaning that we are not just restricted to Nigeria. We see big-ticket transactions in other African countries too.
Could you shed more light on borrowing in local currency bonds works especially if the fund is coming from foreign financiers?
If today, I want to buy an instrument in a foreign market and I have naira, I will convert the naira to buy that instrument in the market’s currency. When they are paying me back, they will not say because I converted from naira therefore, I would be paid in naira. Instead, they will pay me in the currency of the instrument, and I will be the one to convert back to the naira. So, if a foreign investor is investing in a local currency bond in Nigeria, registered with SEC, it cannot be paid back in foreign currency.
The Afreximbank bond is open to Nigerian and foreign investors to invest (but in naira) and I tell you today, even without the foreign investors, the Nigerian market is ready to take up the amount on offer. This amount for me is like a test; N300bn is less than $1 billion, using N360 to a dollar. So, Nigeria can take that. I even think that foreign investors will be struggling to get a piece of it.
Tell us about the Africa Finance Awards and what it means to your institution?
We won that award consecutively for two years, 2018 and 2019 and for us, it shows consistency. We all know that for some of those awards, you must apply but for this one we did not send any entry. The organisers saw what we had done and recognized us on that basis.
For last year, it was the 9Mobile deal that gave us that award which of course I would like to say it is the telecom sector that has been favourable to us. Part of the satisfaction we have doing this job is that we are also able to impact lives. People were scared that perhaps the company was going to go down which would have created a huge dent on our unemployment index in the country but today that has been averted which is good for the country and us. On the back of that deal, people with similar situations have come to us to engage our services.
What is the outlook for PAC Capital in the next 5 years?
Our focus is to be the preferred investment banking firm in Africa and that is our goal. Not necessarily as number one in terms of size but the preferred which means we are number one. As I mentioned before, we operate in at least 25 countries where we have transaction footprints and our target is to cover all the countries in Africa. We see the AFCTFA creating that avenue and we are positioning ourselves to take full advantage of that and we expect it would enable us to do much more than we currently doing.