This article is provided to FT.com readers by mergermarket—a news service focused on providing actionable, origination intelligence to M&A professionals. www.mergermarket.com
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The Central Bank of Nigeria is understood to have appointed Deutsche Bank as leading adviser to oversee the stability of the Nigerian financial sector, which among other things, is expected to lead to a sale of nine Nigerian banks, three people close to the situation told mergermarket.
Deutsche Bank is understood to be working with two local advisers, the same people added. A Deutsche Bank spokesperson declined to comment.
Meanwhile, a number of UK, South African, domestic and Asian banks are emerging as interested buyers for the banks, said four sources close to the situation.
As reported, the nine banks that could be bought in the coming months include Intercontinental Bank; Union Bank of Nigeria; Afribank Nigeria; First Inland Bank (Finbank) Nigeria; Oceanic Bank International; Bank PHB; Spring Bank, Equitorial Trust Bank and Wema Bank. The sale follows a government bailout earlier this year.
Interested parties include Standard Chartered of the UK and Absa of South Africa together with Barclays, three sources close to the sale process said. An unidentified Chinese bank and a Dubai-based private equity firm, believed to be Dubai International Capital, are also in the hunt, according to one of the sources. The second source said that the Chinese bank interested could be Industrial and Commercial Bank of China, which already holds a 20% stake in South African Standard Group, and already has operations in Nigeria. The first source speculated Standard could be looking at the option of merging its existing operation through STABIC IBTC Bank, which is its trading name in Nigeria.
The first source also listed Nigeria-based banks, previously rumoured in the local press as the obvious buyers and/or consolidators: Zenith International Bank; First Bank of Nigeria; Guaranty Trust Bank; United Bank of Africa and possibly Ecobank.
This list was echoed by the third source, who claimed First Rand Bank of South Africa could also not be excluded from the auction. “I wouldn’t dismiss it because it previously missed an opportunity to enter Nigeria. It could look at it now”, the source said. “All other South African banks are quite serious about getting their footprint there, I think. Most of them have strong balance sheets and can raise funds to finance a big acquisition”, he said.
On 15 June 2009 this news service carried a report from Business Day, which quoted FirstRand Chief Executive Designate Sizwe Nxasana as saying the bank was looking to expand into new African markets.
Strategic players are not the only ones looking to take a slice of the lucrative banking sector in Nigeria. The current situation, which some say will reshape not only the Nigerian banking system but possibly the pan-African financial services landscape, is also being closely observed by private equity players. However, private equity can only bid as co-investors, which means they would need to use their existing portfolios as a leverage tool, or partner with the above mentioned banks.
According one South African banker, out of the local PEs, Actis, Kingdom Zephyr and even ECP will be high up on the list of potential bidders. “Actis recently raised funds”, the banker said. However previous investors in the Nigerian financial sector like Ethos might be totally excluded from coming into the game, the banker speculated. Actis is a minority investor in the Nigerian Diamond Bank, the banker noted.
Previous local reports have suggested that the Indian government was eager to become involved in the process. However, the first source doubted the feasibility of this option. The second source said the direct involvement of a foreign government was a bigger political issue. And it would be a strategic decision by the local government on whether three main credentials, “capital, liquidity and governance,” could be provided by a foreign government into Nigerian banking system.
Although the list of potential buyers might seem long, said the second source, given the current situation in the financial sector around the world, the ones that really have the capacity to make deals can be narrowed to those mentioned above, with possibly only a few emerging in due course.
Timing
The first source said that although the government would likely be eager to resolve the ownership of the banks sometime in mid 2010, the potential complexity of the situation could drag the process out longer. “Those banks cannot just continue in limbo”, the source said.
Options being considered by the government include a merger among banks already operating in Nigeria; a sale of different assets to varying investors and nationalising the banks. The latter is option is the least preferred by the government and the least likely scenario, the person went on. The government has poured financing into the banks, but the funds were not automatically converted into equity. Central Bank of Nigeria has injected NGN 600bn (USD 4.1bn) into the troubled banks, according to previous reports in the local press.
Nigeria currently has around 25 major banks, a figure which comes as a result of a consolidation process that took place some two years ago, following an increase in capital requirements to NGN 25bn. According to FT reports quoting Nigerian Central Bank Governor Lamido Sanusi in June this year, the number of banks in Nigeria could be trimmed to 15 banks as tie-ups are coming.
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