Market News

By Anthony Osae-Brown

(Bloomberg) -- Ecobank Transnational Inc. obtained approval from bondholders on a plan to raise its capital buffers helping the Nigerian lender avoid a potential default after it breached a covenant on a $300 million obligation following the devaluation of the naira. 

Bondholders approved the plan on Monday, which requires the bank to raise its capital adequacy ratio to 10%, the firm said in a statement on Wednesday. Creditor approval was needed to remedy the covenant breach, which would have resulted in an “event of default or potential event of default,” according to the statement. The debt is due 2026.

The naira’s 45% depreciation this year coupled with higher operating expenses and credit costs led to a 77% decline in Ecobank’s profit before tax in the six months to June, it said in an investor presentation. It also contributed to its capital buffer falling below 10%. 

The depreciation plunged several businesses in Nigeria with dollar liabilities into losses while lenders that had dollar assets made huge revaluation foreign exchange gains. 

Ecobank will increase its capital adequacy ratio by injecting $10 million to raise its capital above the 200 billion naira set by the central bank for lenders with a national banking license in the West African nation. 

The bank also plans to sell $200 million of Additional Tier 1 bonds in four tranches of $50 million each to enhance its capital adequacy ratio, according to the company’s statement. 

Other measures include:

• Redeeming $200 million of promissory notes maturing in 2027 in tranches.
• Reducing up to $300 million in risk-weighted assets through loan sales to eligible third parties.
• Converting as much as $200 million in dollar-denominated loans to naira to mitigate the impact of potential currency devaluation.”

The lender will pay an “early consent” fee of $1.25 per $1,000 in principal amount to note holders.