U.S. Govt Finances the Takeover of Nigeria's 4th Largest Bank

The Board of Directors of the Overseas Private Investment Corporation (OPIC), the United States government’s development finance institution, has approved $250 million (N39.362 billion) in financing for two American firms helping to take a controlling stake in Union Bank of Nigeria Plc.

A statement from OPIC stated that the project would result in better management and new technology to enable Union Bank reach unbanked segments of the Nigerian population.

Union Bank was one of eight banks to receive a capital injection from the Central Bank of Nigeria (CBN) following the global financial crisis of 2009.

In early 2010, the CBN auctioned the right to recapitalise and restructure the banks. A consortium of investors, including the American sponsors, African Capital Alliance and ABC Holdings, won the bid to recapitalise Union Bank on the basis of a plan to improve its corporate governance, risk management, credit standards and customer service.

The U.S. sponsors, Keffi Group Limited and Discovery Global Citizens Capital Partners and their consortium will use the OPIC financing to introduce new financial products, including mobile banking technology that will enable Union Bank to reach unbanked segments of the population, thereby increasing the availability of credit in Nigeria.

The project will establish an objective performance evaluation system to create opportunities for advancement, identifying needed training and tying staff performance to rewards.

It would also create a Union Bank Academy to provide in-depth training in customer service, credit analysis and risk management and an institutional support office to act as a resource pool for bank management for specialised banking such as foreign exchange management, agricultural credits, factoring and other specialised skills.

‘With the participation of its experienced investment team, this project will encourage the adoption of best international practices of corporate governance; increased transparency; strengthened credit and risk management procedures; and improved customer service, through the participation of an experienced investment team,’ OPIC President and CEO, Elizabeth Littlefield, said.

‘In doing so, the project reflects Nigeria’s serious commitment to reform its banking sector and restore investor confidence.

‘Union Bank of Nigeria serves close to a million depositors and hundreds of businesses – many of them small businesses – so the more efficient and profitable UBN becomes, the better able it is to fuel economic growth in Nigeria’, Ms. Littlefield said.

‘We are particularly pleased that the project will result in greater availability of credit to ordinary Nigerians,’ she stated.

Union Bank, founded in 1917, is the fourth largest bank in Nigeria based on deposits, and the sixth largest based on total assets. It has over 400 branches throughout the country.

Meanwhile, existing shareholders of Union Bank will own 21 per cent of the bank’s shareholding at the end of its recapitalisation exercise.

The deal will also give a group of institutional investors led by ACA private equity a 60 per cent stake, while the Asset Management Corporation of Nigeria (AMCON) will own the remaining 19 per cent.

Addressing newsmen recently, Deputy General Manager, Treasury, Abayomi Oluyomi, explained that under the arrangement, the choice of a consortium of core investors to inject fresh funds into the bank as against the options of merger and acquisition or nationalisation was to protect the interests of all stakeholders.

He said that the disadvantages of other options far outweigh the advantages.

Listing some of the benefits for the shareholders, he said that the recapitalisation would bring in international reputable companies as part shareholders, adding that some part of the existing shareholding would be salvaged.

‘As you can see, this is the best arrangement that adequately protect the interests of shareholders, staff, customers and others. Unlike other arrangements where the shareholders either lost their investment or get a paltry sum, in our case, they still own 21 per cent. This is certainly a good deal,’ he said.

Under the deal, which was agreed in principle in March, ACA Consortium operating as Union Global Partners will invest $750 million; $500 million in equity and $250 million in tier 2 capital. The bank will launch a rights issue to existing shareholders to complement the capital injection, while AMCON will bring Union Bank’s net asset value to zero.

Oluyomi noted that the core investor, Union Global Partners Limited will focus on adding value to the bank, which would be beneficial to all stakeholders, noting that with the capital infusion by the core investor, AMCON and existing shareholders would make Union Bank one of the most liquid banks in the country.

He explained that the bank would retain its brand, stressing that the new investor would inject genuine fresh capital that would enable the lender sustain growth going forward.

Other groups to benefit from arrangement are customers, he said, adding that there would be major improvement in the infrastructure services and technology to make banking experience easier and more enriching.