Published On: Sun, Sep 24th, 2017

Union Bank: N50b lifeline for the Stallion



As part of its strategic effort to reposition a balance sheet a few financial analysts had, hitherto, considered relatively weak and improve liquidity Union Bank of Nigeria (UBN) Plc has raised a N50 billion Rights Issue straight in the middle of one of the slowest growth rates the economy has experienced in the last ten years. Analysts troubled by rising non-performing loans (NPL’s) in the banking sector as a whole, are already anxious about the success of UBN’s new Offer and the implications for the banks future earnings.

The bank has offered existing shareholders 12.1 billion additional ordinary shares of 50 kobo each at N4.10 per share to existing shareholders on the basis of five new shares for every seven shares held as at August 21, 2017

The Rights Issue was opened on Wednesday September 20, 2017 and is scheduled to close on Friday September 29, 2017.

UBN explained that the funds raised would be used to essentially repair its balance sheet by growing its capital base to meet regulatory requirements while the balance of the funds go into swelling its working capital to enable it take advantage of emerging business opportunities.

As with most other banks, UBN is expected to use a good slice of the funds raised to improve its still struggling banking technology architecture and enable it play catch up in the digital banking space. This may enable the bank deepen brand loyalty as its service quality gradually improves.

Chief Executive Officer of the bank, Mr. Emeka Emuwa, has enthused that, “with the commencement of the Rights Issue, we have now officially entered a new phase of our transformation where we will be focused on accelerating business growth to deliver on our objective of becoming one of Nigeria’s leading financial institutions.”

He explained that the bank was taking a shareholders’ forum to Lagos, Port-Harcourt and Abuja within the month.

Union Banks Rights Issue refers to shares offered at a special price by the bank to its existing shareholders in proportion to their previous share holding.

The Rights Issue will provide the bank with additional capital to expand its operations among other things, but it would also significantly dilute earnings by the number of new shares created meaning that investors may expect a major drop in the bank’s earnings per share over the next two years.

Fortunately, Union Bank of Nigeria (UBN) posted a 23 per cent growth in gross earnings for the half year (H1) ended June 30, 2017, this may douse the adverse consequences of the huge fresh Issue .

The bank’s gross earnings for the period under review rose to N73.7 billion against N60.1 billion achieved in the corresponding  period of last year.

Its profit before tax grew by six per cent to N9.5 billion compared to N8.9 billion achieved in the corresponding period of 2016 while profit after tax stood at N9.2 billion as against N8.8 billion recorded in the previous period.

Interest income inched by 31 per cent to N58.3 billion in contrast with N44. 3 billion recorded in 2016 given the Naira devaluation of the foreign currency loan book growth.

Net interest revenue before impairment rose by per cent to ₦31.7 billion as against ₦30.9 billion in H1 2016

Similarly, interest income was up by 19 per cent to ₦26.3 billion against ₦22.2 billion in H1 2016 driven by a reduction in impairment charges. But its operating expenses rose by 11 per cent while it reduced its loan and deposit ratio by 14 per cent to 67.3 per cent in H1 2017 from 81.4 per cent in December 2016.

Emuwa had said, “the bank will continue to focus on enhancement of operational efficiency’’.

“With our clear focus on enhancing the operational efficiency of the franchise, Gross Earnings grew by 23% in the first half of the year to ₦73.7 billion, from ₦60.1 billion in H1 2016,” he noted.

Already Bob Diamond, former Chief Executive officer of Barclays is using the company he co-founded, Atlas Mara limited to strategically increase its stake in Union Bank of Nigeria.

Atlas Mara has also disclosed plans to acquire an indirect 13.4 percent shareholding in Union Bank of Nigeria Plc from the Clermont Group for $55 million to raise its stake in the Lagos-based lender to 44.5 percent.

Atlas Mara bought the shares from the Asset Management Company of Nigeria (AMCON), a vehicle set up by the country’s central bank to absorb non-performing loans in the wake of the 2009 banking crisis. This is a mark of confidence, some market analysts have said.

There is strong belief in financial quarters that UBN may succeed in raising the N50billion it is seeking through its Rights Issue, because of shareholders wanting to squeeze appreciable long term returns on their investments despite not earning income by way of dividends in the last eight years.

Also making the rounds in corporate circles is the suggestion that the bank can raise the amount it needs by way of Rights because of its present concentrated ownership structure and the limited free float in its capital. Most of the bank’s shares are concentrated in the hands of large core institutional investors.

A Lagos based analyst with Sterling Capital Markets Limited, Mr. Sewa Wusu believes that before a bank embarks on a venture of raising capital at this critical time it would have secured certain consents from its owners.

‘’There is confidence in the bank. The management has stabilized the bank and turned it around from negative shareholders funds to a reasonably positive position. The bank is now working to regain its market share given its leading position prior to her challenges a few years ago’’, said Wusu.

But Managing Director and Chief Executive officer of HighCap Securities limited, Mr David Adonri expressed his reservations, saying though the bank has stabilized, if its pre-marketing was not strong, there will not be much to attract investors given that the bank has not paid dividend for close to ten years. ‘’Union Bank has not paid dividend since 2008 so there is nothing to attract investors.’’ Said Adonri.

‘’Union Bank of Nigeria Plc offers a portfolio of banking services to individuals, small & medium enterprises (SMEs), commercial and corporate clients, leveraging a strong mix of branch and alternative channels with a strong geographical network comprising more than 340 branches and cash centres, and over 800 ATMs spread across Nigeria. The Bank’s new brand identity, launched in 2015, has further reinforced its position as a simpler, smarter bank’’, said FSDH Merchant Bankers, one of its issuing Houses.


What is the attraction

Despite a weak recent economic recovery of 0.55 per cent growth in gross domestic product (GDP) in second quarter 2017, the operating environment is still difficult for businesses. UBN has trends by showing a capacity to take on the vigours of turning in strong quarterly performances. This has been despite a national GDP that has plunged from -2.01 per cent in the second quarter of 2016 to -2.24 per cent in the third quarter of the year and 1.5 per cent at year end and 0.52 per cent in the first quarter 2017.

Nevertheless, despite the weak economy, the bank has been able to gallop through the troubles with a modest fourth quarter profit.

The bank, parades total assets of N1.12 trillion and total equity of 251.3billion.  With a customer base of 3.2million and a work force of 2,700 employees, Union Bank is still struggling to get back her numerous customers that migrated during the banking system crisis in 2009/2010.

The bank’s recent momentum has been strongly upbeat again after setbacks experienced when it almost became distressed.

Since 2013, Union Bank has kept its head above troubled waters as it strategizes to retain its previous position as Nigeria’s ‘Big Strong and Reliable’ bank. While the challenging macro- economic has driven some companies into posting losses, Union Bank has turned a decent profit from operations.

For instance: the bank posted profit after tax of N3,951billion in 2012, it rose by 58 per cent to N6,262billion in 2013 and leapt again by 326 per cent to N26,685billion in 2014. Union Bank’s profit after tax plunged by 47 per cent to N14.204 billion in 2015 and dropped by 8.3 per cent in 2016.

Though not as fantastic as shareholders would have expected but they have been assured that the future looks brighter with the expected N50billion capital via Rights Issue.

However, Union Bank has not paid dividend since 2009 ( Seven years) when the CBN sacked its chief executive officer and that of 4 other banks for financial mis-management. The strain of that exercise has weighed down heavily on the second oldest bank in Nigeria which appears determined to make record successes in the future. In fact, many stakeholders have praised Emeka Emuwa, Union Bank’s Chief Executive officer for effort turning the bank around and for attraction huge attention from both internal and foreign investors.

In 2011, customers left the bank in droves after the bank was adjudged terminally ill by the apex bank, thus deposit went down by 33% while loan and advances bolted by 16%. This probably led to increased cost to income ratio which berthed at 183% while equity holders lost more than 420% of their investment.

Then the bank’s assets returned negatives, which invariably meant that it was better to have realized its non-current assets in the market safe for some un-priced goodwill.

Profit before tax had slipped into negative zone, with about N103 billion loss in the hole.

But after a restructuring program, its financials have become better and its business focus redefined. The bank is now having visibility and the brand confidence is stronger compared to past years.

The bank, in addition appears to appeal more to the youthful population now, than its traditional old generation character of rendering banking services. Its rebranding is also reflected in the banking halls and can favourably compare with new generation banks standards.

“I initially thought the gleeful look was randomized, aiming at giving false brand appeal. But, everywhere I go, Union Bank Plc is actually wearing a new look. The bank rebranding program is in no doubt a feat worth celebrating”, Mr. Jide Famodun associate at LSIntelligence team had told Business Hallmark.

The bank which currently has 16.9 billion shares in issue declared no dividend in 2015. Investors are not however worried but hopeful of a bigger thing to come. Union Global Partner limited holds 65 percent of equity investment, Atlas Mara 20.9 percent while diverse shareholders have 14.1 percent.

After 2009 CBN intervention, the bank emerged from the burden of toxic assets, poor governance as well as weak leadership etc. and began to chart a new and straight path to profitability devoid of funfair. The bank’s new brand exudes energy which reflects the ability of some of the individuals’ skills sets working with Mr. Emuwa.

In every respect, the bank strategic direction has been refined, and the brand revitalized but it has to contend with harsh economic environment and the tough rivalry in the industry.

“Union Bank’s restructuring, rebranding and reconnecting to the market has started yielding result. Good result for that matter! The bank’s leadership effort to re-focus was done professionally, no noise but the statement is clear to stakeholders”; analysts told Business Hallmark. The stallion has become lighter, and it could fly as well as run.

Performance in 2016

A deep look at UBN’s financial year end for 2016 shows it posted net interest income of N65 billion as against the N55.7 billion the previous year, while credit impairment charges jumped 67 per cent from N9.9 billion to N16.6 billion. Its operating expenses rose by seven per cent to N62 billion, as against N57.9 billion the previous year.

PBT was N15.7 billion, compared with N14.9 billion, just as profit after tax (PAT) grew by eight per cent from N14.3 billion to N15.4 billion in 2016.

The bank’s gross loans rode on the back of the impact of devaluation on foreign currency loans to hit N535.8 billion, up by 38 per cent from N388.8 billion in 2015.

While customers’ deposits grew by 11 per cent from N569.1 billion to N633.8 billion, shareholders’ funds rose by eight per cent to settle at N251.3 billion, from N233.5 billion in 2015. The bank ended the year with total assets of 1.124 trillion, showing an increase of 12 per cent, compared with N1.001 trillion in 2015.

Union Banks stock closed at N5.60 per share on Thursday June 22, 2017. It is expected that its Rights Issue will be lower than the current price.

Shareholders have expressed readiness to take up their rights given the positive outlook of bank which many expect may pay dividend next year.

Financial analysts believe the bank’s Rights Issue will be successful given that only Atlas Mara Limited and Union Global Partners Limited own 85.89 percent of its total shares.

President, Progressive Shareholders Association of Nigeria, Okezie Boniface still believes that Union Bank, having returned to profitability was going to reclaim its position as a leading bank in Nigeria.

‘’We are hoping that the bank will reward shareholders with dividend next year. So, we are waiting to pick up our Rights’’,

A Lagos based analyst, Mr. Mike Ezeh, Managing Director of Crane Securities limited, reckons that Union Bank should make the price of its rights attractive enough to woo investors who have waited patiently for some years without dividend.



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