Ecobank has secured shareholders’ approval to raise $400 million in its convertible bonds to restructure its operations and strengthen the group’s capital position.
This was secured at the Annual General Meeting and Extraordinary General Meeting held in Lome, Togo of the parent company of Ecobank group, Ecobank Transnational Incorporated. The convertible bond issue will have a maturity of five years and a coupon of 6.46 percent above 3-month LIBOR, with an option to convert at an exercise price of $0.6 during the conversion period. The bonds will be on offer to all Ecobank shareholders on identical terms shortly.
The proceeds have been earmarked to repay the bridging finance required to create a Resolution Vehicle to manage Ecobank’s legacy loan portfolio and to optimise the maturities of the Group’s debt portfolio. Board Chair of Ecobank Group Emmanuel Ikazaboh said they are “We are delighted with the strength of the support shown for the issue by our existing shareholders, as it vindicates the vigorous action taken to address our challenged legacy assets, as well as indicating their confidence in Ecobank’s future.
“Nevertheless, it is a matter of great regret that the Board was unable to recommend the payment of a dividend in respect of 2016,” he continued. “Ecobank’s senior management are united in its firm resolve to work urgently, yet diligently, to reinstate cash dividends as soon as ETI’s financial position permits,” he said.
Group’s Financial Performance
The Group CEO, Ade Ayeyemi, said the despite the continued macroeconomic challenges in some parts of the continent, all of the businesses are making meaningful progress, “with an ongoing focus on cost discipline, stringent credit control and the increasing digitisation of our services to enhance the customer experience”.
He added that “ We are proactively resolving our legacy loan issues, achieving $2 million of recoveries from the Resolution Vehicle in the first quarter of 2017. “I am confident that these positive developments will be reflected in an improving performance from Ecobank going forward.”
Ecobank witnessed on of its challenging financial results for 2016, with a loss before tax of $131million, this was mainly due to higher loan impairment charges were taken in the fourth quarter of 2015.
Impairment losses on financial assets were $864million, an increase of 62 percent over the prior year. Impairment losses on loans and advances comprise 89 percent or $770 million of the total impairment losses on financial assets.
Net Interest Income stood at $1.1billion a decline of $39 million or 3 percent over the over the prior year, mainly stemming from adverse currency movements and a deliberate curtailment in lending activity. In constant dollars, net interest income increased by 11 percent to $1.3 billion due to better yield management.
Net Revenues remained resilient at $2 billion despite being heavily impacted by the adverse currency movements arising mainly from the depreciation of the Naira against the USD and a deliberate curtailment in lending activity, which impacted the financial performance for the year.
Excluding the effects of foreign currency, translation revenue increased 8% compared to the prior year. Group performance was also impacted by the higher loan impairment charges taken in the fourth quarter of 2016 on specific client names related to a legacy portfolio experiencing deterioration in quality on account of macroeconomic conditions, particularly in Nigeria.
“Despite these challenges, group revenues remained resilient in a tough year of macroeconomic headwinds including a weaker economic environment, particularly in Nigeria and the strengthening of our reporting currency – the US dollar – against all African currencies particularly the Nigerian Naira where 40 percent of the Group’s revenues have historically been generated,” the Group CEO added.
Mr Ayeyem explained that “separately, our end of year bottom line performance has been impacted by our voluntary adoption of a full impairment charge regarding our legacy loan portfolio, for which a resolution vehicle was set up, the first private sector funded resolution vehicle of its kind in Nigeria, with the sole objective of ring-fencing the legacy loans from Nigeria’s core bank.”
This, among others, would allow management to focus on delivering results he said adding measures being instituted would yield the desired results very soon. He also disclosed that the bank plans to leverage on the distribution network and strategic partnerships to increase customer base to 100 million by 2020.
He added that they are also working to achieve improved profitability and additional volume growth in non-credit related income-generating business, in the long term.
“Ecobank remains well positioned to benefit from its leading geographic footprint, digital innovation, leading customer service and products to generate profitable, sustainable performance, in line with international best practice standards, introducing audited reporting for the half year 2017,” the Group CEO said.
Instituting measures to avoid any takeover
Ecobank strong performance over the years, as resulted in a lot of interest in Bank, financial institutions like Nedbank of South Africa, Qatar National Bank and IFC all have a significant interest in Ecobank, however with the fear of losing controlling interest or any possibly take over.
But the Board of Ecobank managed to secure shareholders’ approval to put in place measures to ensure that its Pan African interest is protected and ward off any takeover of the bank.