We are keeping our Buy recommendation on the Access Bank (ACCESS) 10.5% 2021 bond following a report stating that Access Bank is in talks to acquire Union Bank of Nigeria (UBN). Both lenders have denied this.
Acquisition of UBN – at a time when Access Bank is yet to fully work out legacy problem assets it now owns following the Diamond Bank transaction – may not be viewed too positively. Having said this, Access Bank is no stranger to acquisitions. For our thoughts on Access Bank following the Diamond Bank merger, see ACCESS: Bigger will be better.
UBN has operated in Nigeria for over a hundred years. The bank ran into difficulty many years ago, and the Nigerian authorities stepped in. UBN was subsequently sold to new owners. UBN recently received approval from shareholders to reduce its share premium, to cover legacy accumulated losses. There has also been talk of UBN issuing a bond.
According to UBN’s latest disclosures, its two largest shareholders are Atlas Mara and Union Global Partners Ltd. The latter is a consortium, which was formed to recapitalise UBN.
Based on a 2012 release, Union Global Partners Ltd has six core investors – African Capital Alliance, African Development Corporation, Corsair Capital, FMO, the Richard Chandler Corporation and Standard Capital Private Equity. We acknowledge that this may have changed. The company structure of the Atlas Mara group shows links to Union Global Partners Ltd.
Earlier this year, FMO arranged a US$162.5mn subordinated syndicated loan for Access Bank, with the loan provided by a group of DFIs. It is not clear that one can read anything into this as FMO is also exposed to other SSA banks. As just one example, FMO is one of the investors behind Arise BV, the investment firm which has agreed to purchase a 14.1% stake in Ecobank Transnational Inc. from the IFC. Further, FMO is not alone – similar institutions also have exposure to Nigerian banks.
Pascal Dozie, who founded Diamond Bank and whose son was CEO of the bank until the Access Bank transaction completed, was a co-founder of African Capital Alliance (ACA). Although he is no longer listed as a partner on the ACA website, links between ACA and the Dozie family may well have contributed to speculation regarding Union Bank. Separately, we note that prior to the Access Bank transaction, there was speculation that Union Bank and Diamond Bank were in talks. Recent comments from the Central Bank of Nigeria (CBN) regarding recapitalisation of the banking sector may have contributed to M&A speculation.
The table overleaf shows key Q1 19 figures for Access Bank and UBN. For context, Diamond Bank had total assets of NGN1.55tn at end-September 2018, and NGN1.37tn at end-2018. We stress once again that both Access Bank and UBN have denied speculation regarding a transaction.