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Banks Deepen Capital Market

By Lucky Fiakpa

The embattled Nigerian capital market may now have a breather as banks open a new window of investment for investors, Lucky Fiakpa writes
Guaranty Trust Bank (GTB), though a new generation bank, it however practices banking as of old. Cool, calculated and conserved. It is never loud in its approach to the business. But that has not diminished its drive for creativity. Since becoming a full-fledged commercial bank, it has been very innovative.

Come August 27, this year, the bank will be opening another chapter in its quest for innovation. The bank would be seeking approval for a N200 billion bond issue from an Extra-ordinary General Meeting, EGM, scheduled to take place on 27 August. It will be the second bank after First Bank be going for bond issue in Nigeria.

A bond is a debt security, similar to an I.O.U. When one purchases a bond, he will be lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for the loan, the issuer promises to pay you (investor) a specified rate of interest during the life of the bond and to repay the face value of the bond (the principal) when it “matures,” or comes due.

For example, if one buys a bond with a face value of N1 million a coupon of 12 per cent and a maturity of five years this means the person will receive a total of N120,000 of interest per year for the next five years. Actually, because most bonds pay interest semi-annually, you’ll receive two payments of N60,000 a year for five years. When the bond matures after a decade, you’ll get your N1 million back.

It follows therefore that should the board succeeds in getting the approval of shareholders at the EGM, the bank would be borrowing N200 billion apparently to meet some of its expansion projects. The coupon rate would depend how successful the bank would go with the offer. With the downturn in the equity market, this is indeed, a welcome development that could help to deepen the capital market.

Financials

Profit for fiscal 2008 was N29.2 billion, 21 per cent higher than Renaissance Capital predicted for the period, the brokerage said in a report. The liquidity ratio, a measure of access to capital, increased to 64 per cent from 62 per cent in February 2008, Renaissance said. The fiscal 2008 year was shortened to 10 months as the bank changed its financial year-end to December, from February.
In addition to delivering very strong profit and asset growth, Guaranty Trust Bank successfully managed its liquidity position.

While most banks around the world were focused on managing the rapid deterioration in their asset quality, Nigerian banks spent most of 2008 protecting their liquidity positions.
The bank’s stock is doing pretty well on the floors of the Nigerian Stock Exchange, NSE, and Renaissance Capital has a “buy” recommendation on the stock.

GDR Transaction

In July 2007, GTBank became the first Nigerian and African bank to issue a full listed GDR offering on the London Stock Exchange. The transaction comprised a 2-tranche structure of a simultaneous US$250mm domestic GDR offering and a US$500mm international offering. The GDRs issued are represented by the underlying ordinary shares of the Bank with an exchange ratio of 1GDR to 50 ordinary shares. While the domestic GDR offering is no different from the international GDR offering, this transaction structure was adopted as a means of ensuring that domestic investors were provided with the opportunity of participating in this historic offering.

However, given the differences that exists between the Nigerian and international equity issuance process, one of which is the pricing of primary securities, the Bank adopted an innovative and unique offering process, with a view to ensuring that such differences are minimized to a large extent in order not to frustrate the transaction and completion timeline, while achieving the above mentioned objectives.

In a typical primary equity offering in Nigeria, a “Fixed Price” approach is often adopted i.e. investors are advised of a fixed price at which the primary offering will be made, on the day an offer opens up till the closing date. However, in international capital markets, a “Book Building” process is often adopted for the marketing and pricing of primary equity offerings. Book Building is basically a capital issuance process which aids price and demand discovery. The Offer price is then determined after the bid closing date.

Consequently, the underwriters of the domestic tranche adopted a Reference Price of $12.75 per GDR for the duration of the domestic tranche as a guide for domestic investors, with the caveat that the offer price to be determined on July 20 may close at below or above the Reference Price, given the international market practices. On July 20, 2007, the offer price was fixed at $11.20 per GDR.

Without a doubt, the GTBank GDR issuance in the international financial markets recorded an unprecedented milestone in the domestic capital markets and provided the economy with several multiplier benefits. The growing appetite for quality equity offerings from the international investing community is also viewed as a positive signal of the strong underlying prospects of the Nigerian economy in the short to medium-term.

Euromoney Awards

Africa’s first bank to be listed on the London Stock Exchange, Guaranty Trust Bank plc, has achieved yet another feat when it was last month recognised by the pre-eminent international finance magazine, Euromoney, as the “Best Bank in Nigeria” at the 2009 Euromoney Awards for Excellence Dinner in London.
Guaranty Trust Bank’s Deputy Managing Director, Segun Agbaje, who led a group of senior executives to the event, received the award in London on behalf of the Bank.

In recognizing GTBank for the award of “Best Bank in Nigeria”, Euromoney highlighted its leadership in the financial sector saying, “Guaranty Trust was one of the first banks to institute International Financial Reporting Standards (IFRS) a move that has been followed by others.”

Euromoney was also particularly impressed with GTB’s expansion into the unbanked market making it less reliant on a narrow base of customers in the major cities. It noted that GTBank has been good at expanding retail lending to those without official banking relationships and is beginning to distribute advances and take deposits through mobile banks in rural areas. This feat is yet another attestation to Guaranty Trust Bank’s growing profile on the African Continent.

Commenting on the award, Tayo Aderinokun, Group Managing Director, Guaranty Trust Bank said that the award was a great reflection of the contribution and commitment of all members of the GTBank team to ensuring that the Bank’s core values of integrity, professionalism and superior service delivery are maintained at all times. GTBank’s ever growing list of achievements over the years serve to enhance the bank’s reputation as one of Nigeria’s most profitable and fastest growing banks and reinforces the AA- (double A minus) by Fitch; and BB- (double B minus) by Standard & Poor’s – the best ratings assigned by the two international rating agencies to any Nigerian or West African-based bank.

Remarkably, the Standard & Poor’s rating is the same as Nigeria’s sovereign rating.
In terms of bottom line performance GTBank has led the way with a “34 per cent increase in net profits for the awarding period among Nigerian banks”. Furthermore, Euromoney noted the more sustainable nature of the banks earnings profile, “GTBank was one of the best at avoiding margin lending in the industry and has increased its liquidity position exceptionally well”. Total assets and contingents for the bank during the period also rose by over 37 per cent.

Guaranty Trust Bank currently has five banking subsidiaries established outside of Nigeria – Guaranty Trust Bank (Gambia) Ltd, Guaranty Trust Bank (Ghana) Ltd, Guaranty Trust Bank (Liberia) Ltd, Guaranty Trust Bank (Sierra Leone) Ltd and Guaranty Trust Bank (United Kingdom) Ltd. The Bank services its customers from 154 branches in Nigeria, as well as other branches of its subsidiaries throughout the region. It also has five non banking subsidiaries namely; Guaranty Trust Assurance Plc, which provides insurance services in Nigeria; GTB Registrars Limited, a securities registrar; GTHomes Limited, which provides mortgage services; GTB Asset Management Limited, which provides asset management and other investment services and GTB Finance B.V., a finance subsidiary located in The Netherlands.


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Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.