$1bn Stake To Be Acquired In Unity Bank By Foreign Investor
Milost Global Incorporated is looking to inject as much as $1bn to recapitalise Unity Bank Plc, which is struggling to build buffers after a slowdown in Nigeria, according to two people familiar with the matter.
New York-based Milost offered to invest $700m in equity and $300m in five-year bonds that can be converted into shares in the bank.
The private-equity firm will get an initial stake of about 30 per cent in the Lagos-based bank in exchange for its first equity investment of $250m.
Sources familiar with the development said the transaction was still subject to a due diligence as well as regulatory approvals, the people said.
The first part of the deal might be completed in the second quarter of 2018.
The rest of the cash would be drawn down in intervals over a period of four years, provided Unity Bank has sufficient shares to issue to Milost, one of the people said.
Some small and mid-sized Nigerian banks are battling to rebuild capital levels after a slump in oil prices triggered a foreign-currency shortage and a contraction in the country’s economy in 2016, which made it difficult for businesses to repay loans.
Unity Bank, which was formed out of the merger of nine banks between December 2005 and March 2006, said in April last year that it was in talks to sell its non-performing loans to avoid penalties after missing a deadline set by regulators on its recapitalisation plans.
An investment in Unity Bank will be Milost’s third in a publicly traded Nigerian company since it agreed to pump $350m into oil services company, Japaul Oil & Maritime Plc in February and to provide a $250m financing facility to Resort Savings & Loans Plc.
Several calls to the numbers listed on Milost’s website went unanswered.
The private equity firm is targeting companies that trade at less than half of their intrinsic value using a facility combining debt and equity that it calls the Milost Equity Subscription Agreement, it said in an emailed statement on Monday.
Milost buys shares of a company at a minimum 50 per cent premium to its market value, and then pegs this price over the next 90 days.
If the stock fails to exceed this threshold, the target company will pay the difference to Milost in the form of extra stock, and a penalty of 10 per cent to 20 per cent of the discount that the share is trading at over a five-day period, it said.
“The Milost Equity Subscription Agreement is a growth instrument that creates and builds confidence in the stocks of the companies in which it invests,” the company said.
“The targeted company cannot draw down the full committed facility in one tranche and is only allowed to use it from time to time over a three- to five-year period, with Milost eyeing a seven- to nine-year horizon for an exit,” it said.
Milost is taking a bet on Unity Bank as the economy of Africa’s largest oil producer shows signs of recovering from a recession after three straight quarters of expansion in Gross Domestic Product, which the International Monetary Fund estimates will grow by 2.1 per cent this year.
Net income at Unity Bank slid by almost 54 per cent to N2.18bn ($6.1m) in the 12 months through December 2016, with assets of N493bn , according to the company’s latest annual report.
Its non-performing loans stood at 48 per cent in 2016, when it reported its second straight year of negative capital adequacy ratios, the report showed.
The stock has gained 10 per cent this year, giving Unity Bank a market value of N15.8bn.