Fidelity Bank Issues Landmark $400M Eurobond, Refinances $256M Maturing Notes

by Ike Obudulu Posted on October 17th, 2017

Lagos, Nigeria: In a statement released on Monday, October 16, Fidelity Bank Plc,said that on October 11, 2017 it
successfully priced a $400m five-year Eurobond with a 10.50 per cent coupon in what is the largest combined new issue and liability management offering ever by a Nigerian issuer.

Citigroup Incorporated, Renaissance Capital and Standard Bank Group Limited managed the deal, which included an any-and-all cash tender offer for the early redemption of its $300m 6.875 per cent notes due May 9, 2018.

Fidelity Bank Plc reiterated that the tender offer was very successful with the repurchase of $256m of its $300m existing United States dollar notes due in May 2018. This represented a tender hit ratio of 85 per cent, one of the best results recently achieved by peers.

Proceeds from the new $400m issue due 2022 was used to finance the tender offer of $256m and the balance (net issuance cost) will be used to support the trade finance business of the bank, according to the statement.

The company was said to have conducted a focused marketing campaign on the back of the strong tender offer and new issue investor feedback. The strong demand for the new issue and the transaction structure favouring existing holders during the new issue allocation, was said to have led to a high conversion ratio with over 60 per cent of the holders of the old notes subscribing for the new notes.

The landmark Eurobond issue was twice oversubscribed (Order Book of $630m), with the final coupon ultimately set at 10.50 per cent. The transaction achieved a wide market distribution with over 100 investors from the United Kingdom, United States, Continental Europe, Asia and Africa subscribing to the new issue.

The Managing Director, Fidelity Bank, Mr. Nnamdi Okonkwo in the released statement said:

“We are delighted to have successfully completed the offering, and believe the transaction has a big positive signaling effect. It paves the way for other banking institutions, especially the tier-two banks in Nigeria to explore the Eurobond source of funding in the international arena and talk to the global emerging markets investor community as Nigerian market rebounds and we see bigger demand for strong local stories.”

Fidelity Bank’s $400m issue demonstrated strong trading upon entering the market post-pricing, cementing the Eurobond’s robust position, the bank said.

Fidelity is a full-fledged commercial bank operating in Nigeria with over 3.8 million customers who are serviced across its 240 offices and various digital banking channels. The bank is focused on select niche corporate banking sectors, Small and Medium Enterprises and is rapidly implementing a digital-based retail banking strategy.

Over the last 3.5 years, the strategy, it explained had resulted in: a 93 per cent growth in savings deposits; 50 per cent customer enrollment on debit cards and 30 per cent of its customers now using its flagship mobile/internet banking products.

Fidelity Bank ended the half year to June 30, 2017 with an impressive financial results, posting growth in key performance indicators.

The bank posted gross earnings of N85.8 billion in H1 of 2017, up 22 per cent from N70.2 billion recorded in the corresponding period of 2016. Interest income grew by 27.8 per cent, while interest expenses grew faster by 48 per cent to hit N38.2 billion compared with 25.7 billion in 2016. As a result, net interest income stood at N34.7 billion in 2017 compared with N31.2 billion, indicating a rise of 11 per cent. Impairment charges remained flat at N4.8 billion in 2017 as against N4.79 billion in 2016.

Despite the high inflationary trend, the bank reduced operating expenses by 1.7 per cent to N30.9 billion, from N31.4 billion in the corresponding period of 2016.

Consequently, profit before tax (PBT) rose by 66.6 per cent to N10.2 billion, from N6.131 billion in 2016, while profit after tax (PAT) improved by 65.6 per cent from N5.457 billion to N9.04 billion in 2017. Earnings per share similarly improved to 31 kobo as against 19 kobo in 2016.

Eurobond

A eurobond is a bond denominated in a currency not native to the issuer’s home country. Eurobonds are commonly issued by governments, corporations, and international organizations.

Eurobonds often trade on an exchange — most often the London Stock Exchange or the Luxembourg Stock Exchange — and they trade much like other bonds. The eurobond market is considered somewhat less liquid that the traditional bond market, but is still very liquid.

Eurobonds are usually “bearer bonds,” meaning that there is no transfer agent that keeps a list of bondholders and arranges the interest and principal payments. Instead, holders receive interest when they present the coupon to the borrower, and receive the principal when the bond matures and the holder presents the physical bond certificate to the borrower.

Like other bonds, eurobonds obligate the borrower to pay a certain interest rate and principal amount according to the terms of the indenture. However, eurobonds often pay interest annually rather than semiannually, like U.S. corporate bonds.

The less-frequent coupons make eurobonds somewhat less valuable — and thus require higher yields — than traditional U.S. corporate bonds. Even if both investors receive the same amount of interest every year, the difference in payment frequency means that investors should compare eurobonds to other bonds very carefully.

Eurobonds give issuers the opportunity to take advantage of favorable regulatory and lending conditions in other countries. Eurobonds are not usually subject to taxes or regulations of any one government, which can make it cheaper to borrow in the eurobond market as compared to other debt markets.

Borrowing in foreign currencies also present risks in addition to the standard credit risk and interest rate risks. Eurobonds are exposed to exchange rate risk, and because exchange rates can change quickly and dramatically, the total return on a eurobond can be affected dramatically in a very short amount of time.

Bonds

A bond, also known as a fixed-income security, is a debt instrument created for the purpose of raising capital. They are essentially loan agreements between the bond issuer and an investor, in which the bond issuer is obligated to pay a specified amount of money at specified future dates.

When an investor purchases a bond, they are “loaning” that money (called the principal) to the bond issuer, which is usually raising money for some project. When the bond matures, the issuer repays the principal to the investor. In most cases, the investor will receive regular interest payments from the issuer until the bond matures.

Different types of bonds offer investors different options. For example, there are bonds that can be redeemed prior to their specified maturity date, and bonds that can be exchanged for shares of a company. Other bonds have different levels of risk, which can be determined by its credit rating.

Bond rating agencies like Moody’s and Standard & Poor’s (S&P) provide a service to investors by grading fixed income securities based on current research. The rating system indicates the likelihood that the issuer will default either on interest or capital payments.

Bonds and other fixed-income securities play a critical role in an investor’s portfolio. Owning bonds helps to diversify a portfolio, as the bond market doesn’t rise or fall alongside the stock market. More important, bonds are generally less volatile then stocks, and are usually viewed as a “safer” investment.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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