Fidelity Bank Launches $500M Eurobond To Finance Existing Notes, Boost Operations

by Ike Obudulu Posted on September 30th, 2017

Fidelity Bank Plc disclosed in a notification to the Nigerian Stock Exchange (NSE), on thursday, plans to launch up to $500 million Senior Unsecured Medium Notes (Eurobond) as well as a tender offer to purchase the banks’ outstanding $300 million 6.875 per cent Notes due May 9, 2018. According Fidelity Bank, it intends to list the $500 million on the Irish Stock Exchange with the expectations that the notes will be traded on its regulated market.

Fidelity Bank said it intended to issue the notes directly but will retain the flexibility to substitute issuer with an offshore special purpose vehicle (SPV), where market conditions require and allow for such prior to the maturity of the notes.

Fidelity Bank Plc said the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC), have given ‘no objection’ approvals to the transaction.

According to the bank, the net proceeds of the notes will be used to finance the tender offer of existing notes and for its general banking purposes.

“The bank will pay the net proceeds from the notes issuance after settling the existing notes in foreign currency or converted into Naira, depending on the bank’s requirement from time to time,” it said.

Fidelity Bank had 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.


Photo:Fidelty Bank Plc

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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