An American private equity firm, Milost Global Inc, is seeking to inject $1 billion to recapitalise Unity Bank Plc, one of Nigeria’s 24.
According to a report, the U.S. firm plans an initial stake of about 30 per cent in Unity Bank in exchange for its first equity investment of $250 million.
Relying on two sources believed to be aware of talks on the transactions, Bloomberg reports that Milost plans to invest $700 million in equity and $300 million in five-year bonds that can be converted into shares in the Nigerian lender.
However, the transaction is still subject to a due diligence as well as regulatory approvals, but the first part of the deal may be completed by next quarter.
The rest of the cash will be drawn down in intervals over a period of four years, provided Unity Bank has sufficient shares to issue to Milost, one of the sources said.
Some small- and mid-sized Nigerian lenders are battling to rebuild capital levels after a slump in oil prices triggered a foreign-currency shortage and a contraction in the country’s economy in 2016 made it difficult for businesses to repay loans.
Unity Bank, which was formed out of the merger of nine banks between December 2005 and March 2006, said last April that it was in talks to sell its non-performing loans to avoid penalties after missing a deadline set by regulators on its recapitalisation plans.
An investment in Unity Bank will be Milost’s third in a publicly traded Nigerian company since it agreed to pump $350 million into oil-services company Japaul Oil & Maritime Services Plc in February and to provide a $250 million financing facility to Resort Savings & Loans Plc.
Several calls to the numbers listed on Milost’s website have gone unanswered, Bloomberg said.
The private-equity firm is targeting companies that trade at less than half of their intrinsic value using a facility combining debt and equity that it calls the Milost Equity Subscription Agreement, it said in an emailed statement Monday.
Milost buys shares of a company at a minimum 50 per cent premium to its market value, and then pegs this price over the next 90 days. If the stock fails to exceed this threshold, the target company will pay the difference to Milost in the form of extra stock, and a penalty of 10 per cent to 20 per cent of the discount that the share is trading at over a five-day period, it said.
“The Milost Equity Subscription Agreement is a growth instrument that creates and builds confidence in the stock of the companies in which it invests,” the company said. The targeted company cannot draw down the full committed facility in one tranche and is only allowed to use it from time-to-time over a three- to five-year period, with Milost eyeing a seven- to nine-year horizon for an exit, it said.
Milost is taking a bet on Unity Bank as the economy of Africa’s largest oil producer shows signs of recovering from a recession after three straight quarters of expansion in gross domestic product, which the International Monetary Fund estimates will grow 2.1 per cent this year.