Diamond Bank is planning the biggest fund raising by a Nigerian lender this year as banks seek dollars to finance oil, power and other infrastructure projects, while meeting central bank capital requirements.
The Lagos-based lender plans to raise as much as $750 million in shares or bonds this year to fund more projects and raise its capital adequacy ratio, a measure of financial strength, to between 20 percent and 25 percent, according to Chief Financial Officer Abdulrahman Yinusa. The Central Bank of Nigeria requires a ratio of 15 percent and Diamond Bank’s was 17.3 percent at the end of 2012.
Fidelity Bank Plc is planning to issue a $350 million Eurobond to finance infrastructure including power and oil and gas industry projects. While Nigeria’s banks are returning to profit after the industry came near to collapse in a debt crisis in 2008 and 2009, many lenders need to rebuild their capital adequacy requirements, said Ronak Gadhia, an African equity analyst at Exotix Ltd. in London. Lenders also need access to dollars if they want to benefit from project lending, he said.
“The retail market hasn’t really taken off and most of their loan growth is being driven by big infrastructure lending or big projects in the oil and gas industry or the power industry which everyone seems to be getting excited about,” Gadhia said. “A lot of that lending has to happen in dollars.”
Nigeria, Africa’s top oil producer, is selling majority stakes in power plants and letting private investors acquire holding of as much as 60 percent in six transmission and 11 power distribution companies spun out of the former state-owned utility.
Banks have also increased lending to the oil industry as smaller producers increased drilling activity as they seek to boost output. Companies including London-based Heritage Oil Plc and Lagos-based Neconde Energy Ltd. bought stakes in fields owned by Royal Dutch Shell Plc, Eni SpA and Total SA.
“Confidence is returning on the Nigerian capital market, likewise returns, which is good for what we want to do,” Yinusa said in a phone interview yesterday. “Returns on Nigerian international debt instruments like the Eurobonds have been impressive, likewise investor interest, that for us gives us a chance.”
The Nigerian Stock Exchange All-Share Index has advanced 21 percent this year, the third best performance in Africa, according to data compiled by Bloomberg. Yields on Nigeria’s Eurobonds have fallen 30 basis points this month to 4.04 percent, the lowest since Jan. 31.
Central Bank of Nigeria Governor Lamido Sanusi fired the chief executive officers of eight of the country’s 24 lenders in 2009 and the government set up the Asset Management Corp. of Nigeria in 2010 to buy bad debts from the country’s banks, including a N25 billion ($159 million) loan Diamond Bank had extended to Geometric Power Ltd., a power generation company.