Ecobank announced on Wednesday that it has obtained approval from bondholders to raise its capital buffer, increasing it by 10%, to avoid defaulting on its 5-year senior bond.
This move is part of the bank’s effort to manage inflationary pressures on the naira, which had prevented it from meeting obligations on its US$300 million, 5-year senior bond issued at a 7.125% coupon rate per year, potentially leading to a covenant breach.
However, Ecobank confirmed on September 18, 2024, that bondholders have now approved a 10% increase in the bank’s capital buffer, the capital adequacy ratio, providing a solution to avoid defaulting on the bond, which is set to mature in 2026.
What to know:
- The bond, issued in 2021, represents a non-sovereign Eurobond issuance from an African entity, carrying a coupon rate of 7.125% with a 2026 maturity date.
- Listed on the London Stock Exchange, the bond was oversubscribed by 300%.
- Due to the economic strain from the naira’s devaluation, Ecobank came close to defaulting on its bond covenant.
- With bondholder approval, the bank will raise its capital adequacy ratio by 10%, a move that will strengthen its capital buffer, the capital adequacy ratio, designed to absorb losses and operational shocks.
- Ecobank plans to inject $10 million to boost its capital above 200 billion naira, increasing its capital adequacy ratio by 10%.
Additional steps to meet obligations
Ecobank is preparing to issue an additional $200 million in Tier 1 bonds, which will be divided into four tranches.
Alongside this, the bank is converting $200 million in dollar-denominated loans into naira, a strategic decision to protect against the volatility caused by the depreciation of the naira.
In addition, Ecobank has plans to redeem $200 million worth of promissory notes, set to mature in 2027, also in tranches. To further improve its financial position, the bank intends to offload $300 million in risk-weighted assets through loan sales to qualified third-party buyers.
Performance
- Ecobank reported an impressive pre-tax profit of N241.9 billion for the second quarter of 2024, reflecting a remarkable 162% year-over-year increase from the N92.5 billion recorded during the same period in 2023.
- This growth was driven largely by a significant rise in net interest income, which surged by 160% compared to the previous year.
- Additionally, the bank’s cash and cash equivalents experienced a substantial jump, increasing to N5.5 billion from N2.2 billion in 2023.
Although Ecobank’s stock price experienced a temporary decline, dipping below N22 in May, the overall performance in 2024 has been notably bullish.
As of now, the stock is trading at N24, with potential to climb further, possibly reaching the high of N26.60 that was recorded in January 2024.
