The Board of the Asset Management Corporation of Nigeria (AMCON) concluded its first board meeting today in Abuja, during which it reiterated its mission to acquire non-performing loans across the banking industry, recapitalise the rescued banks and manage the acquired assets.
Consequently the board is pleased to announce that it has approved the purchase of all the margin loans in the banking sector and all the non-performing loans of the rescued banks, both totaling in excess of N2.2trillion.
The valuation methodology that has been agreed with the Honourable Minister of Finance, the Governor of the Central Bank of Nigeria (CBN) and the banks will be based on the following:
For non-performing loans (NPLs) backed by shares of listed companies, AMCON will value the loans at an implied premium of approximately 60% on the 60-day average of recent prices ending November 15th 2010. The underlying assumption is that a fair value to ascribe for the purposes of buying the NPLs would be two times book value and this premium approximates that value. It should be noted that this valuation is solely for the purpose of buying the NPLs and not for recapitalisation of the banks.
For non-performing loans (NPLs) backed by other perfected collateral, AMCON will accept the most current estimate of the loan value supplied by the institution. The estimate must be based on current market analysis of the collateral and a written guarantee of good faith by the institution. Additionally, there must be a post-transaction adjustment agreement that allows AMCON to independently value the loan as of the transaction date of November 15th 2010.
All unsecured loans or loans with ineligible collateral will be valued by AMCON at 5% of the principal value.
It is expected that AMCON will reach agreements with the selling institutions regarding pricing of the NPLs by November 15th, 2010, and aims to settle these transactions on or before December 30th, 2010. This will allow the institutions to obtain the necessary Board and Shareholder approval, whilst also giving AMCON the time to establish the necessary operational structures to settle these purchases.
These transactions constitute an important first step. AMCON will be addressing the issues of recapitalisation and the purchase of non-performing loans across all banks in the near future.
The board has also approved a funding model for AMCON based on conservative estimates of recovery rates and return on managed assets. With the landmark agreement by the Banks to contribute to a sinking fund, AMCON board is satisfied that the guarantee of the FG of Nigeria will not need to be invoked at the end of its expected ten year life span.