Nigeria has had a tough but active couple of years. The financial crisis saw the Central Bank of Nigeria intervene in nine of the country's leading banks and a wide restructuring of the banking sector has ensued....
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Nigeria has had a tough but active couple of years. The financial crisis saw the Central Bank of Nigeria intervene in nine of the country's leading banks and a wide restructuring of the banking sector has ensued.
"The universal banking system has been abandoned and now there are three separate licenses for retail banking, merchant and investment banking, and a licence for a financial holding company," says a partner, adding that "there was also a complete restructuring of banks and their balance sheets". The aim is to protect retail banking from riskier types of financial activity.
The upheavals and subsequent measure to tackle the issues mean that through 2010 and 2011 firms have been very busy advising the Central Bank of Nigeria (CBN) on the sale of banks' assets and on a quantitative easing programme, and advising the Asset Management Company (AMCOM), which has taken on all the banks' bad debts and initiated a vast programme of bond issuances. Firms have also been busy advising the large number of banks which owned subsidiaries in riskier areas and which are selling businesses off to comply with the new regulations.
"The CBN asked for bids for acquisition of parts of the nine distressed banks," says a partner, and while "there is demand to buy these," says another, "at the moment there is a glut in the market." Added to this, the selling process in mid-2011 was temporarily being thwarted by shareholders of the banks that were blocking the forced sales.
The consequence so far has been a slowdown in lending. "Banks are not lending so a lot of smaller businesses are in trouble. Liquidity rates are very high and a lot of companies can't pay the interest that banks are asking for. Banks are just chasing a few projects, rattled, looking for choice assets, no more quick turnaround margin loans," says one partner. According to one firm however, "the market for mega deals is still very much there".
The market has made a quick shift from being very much equity driven to having an active debt capital markets and guidelines for pension funds' investments have been relaxed, so firms expect a boost of new money investments from this sector. According to one partner, "securitisations are beginning to get busy again and the debt markets in general are quite active, while equity has evaporated".
The debt capital markets "have come back to life... last year (2010) it was rather quiet... prior to the crash in the market there were no private debt issuances, only from government entities, but now there are issuances in oil & gas and financial service companies which have all been fully subscribed and there is a considerable appetite".
The market has been active in M&A, with firms registering a strong year due to the restructuring in the banking system but also thanks to a lot of movement in the oil and gas sector. There were also a number of large transactions in the heavy industries and consumer sectors. In projects, firms point to the huge shortage in power supply and a move for privatisation in the power sector.
Key new bits of legislation include the Petroleum Industry Bill and the accompanying Local Contents Bill, which obliges local company participation in the oil & gas sector.
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