Chike-Obi: AMCON Took Banks’ Earnings to Where They are Today

As holders of the Asset Management Corporation of Nigeria (AMCON) bonds await payment from the corporation, the Managing Director/Chief Executive Officer Mr. Mustapha Chike-Obi told Kunle Aderinokun, Eromosele Abiodun and Obinna Chima the reasons it is refinancing its debts

 

 

The recent increase in AMCON levy seems to be affecting banks’ earnings as was clearly seen in their third quarter performance. Did AMCON and the regulators not take this into consideration before taking the decision?

 

 

The increase was not a surprise. The increase was an attempt to make sure that AMCON’s activities are concluded within a reasonable time and we think 10 years is a reasonable time. The banks were part of the consultation and they are all very responsibly and graciously agreed to the increase. The effect on banks’ earnings, obviously banks would have made more monies without the levy. But we must stop back and look at banks’ earnings as a whole. The activities of AMCON made banks’ earnings to where they are today. Before AMCON, no bank in Nigeria made N100 billion profit, but now some of them are doing that. So I think it is responsible thing for everybody to bear of the burden of the rescue and while we accept that it affect banks’ earnings, we think that for the economy as a whole, it is a very positive thing.

 

 

What is the update on the proposed national carrier arrangement for Aero Contractors, one of the firms in which AMCON has substantial stake? And also, how far has AMCON gone with the recovery of its debt?

 

 

First of all, let me talk about Aero Contractors. Aero had debts with the banks which AMCON took over. In taking over those debts and in looking at the debts, it was clear to us that Aero could not service the debts and run profitably, so some of the debts were converted to equity and the rest of it are still being carried by the institution. AMCON owns 60 per cent of Aero Contractors. Aero Contractors has a board of director, it has management and we will say as a majority shareholder, we appointed the chairman of Aero Contractors, we were part of the appointment of the managing director and we have members on the board of Aero Contractors as a responsible shareholder. But Aero Contractors is a corporation and is free to pursue its commercial interest and compete with other airlines and our hope is that Aero Contractors becomes the dominant airline in Nigeria because we have an interest in it.

 

 

However, if Aero is involved in discussions about national carrier or no national carrier, we as AMCON need to be sure of three things: that such a move would be the interest of AMCON; secondly, that such an interest would be of interest to Nigerians; that all procedures leading to that event must be completely transparent and orderly. So, those are the three things we are concerned about. We are not going to be the one to run Aero Contractors, we are not going to be the one to decide what route Aero Contractor flies, we are not going to determine managerial issues. But as the majority shareholder, we want to make sure our interest are protected and enhanced, that Nigeria’s interest are protected and enhanced and that the process are transparent. That is what we care about and we are writing them a letter to state our concerns and those concerns must be addressed. So it is not AMCON that decides the agreement, it is Aero and its board.  There is no way we can be involved in everything. We own 95 per cent of Ascot, we own a 100 per cent of three banks, we are the majority shareholder in many other banks which I don’t want to name, we are the majority shareholder in Multitrex. So do you really think that we sit there every day? We don’t have the time for that. We do have those three concerns that they report to us as a shareholder and that everything they do is in our interest, in the interest of the country and it can be defended. But Aero is really not that big to us today. We are dealing with Capital Oil, we are dealing with so many other things but we will make sure that whatever happens to Aero, be it a national carrier, be it fleet acquisition, root expansion, labour union practices, that in anything they do, our concern are enhancement of our shareholder value, in the interest of the country and it is done in a way that it can be defended in terms of transparency. So once these things are there, we let them run the company. So I can’t go and manage Aero because if I do that I will be defective and I would not be able to do my job.

 

 

What is the update on the non-performance loans you acquired from banks? And how much has been restructured so far?

We started with a pool of non-performing loans and we restructured some, we changed some from debt to equity. So when you see the value of purchased loans, Aero is not there, Multitrex is not there. We have debts which we have restructured into equity and which we carry at very low levels. Let me say this to you; we have loans, we have a lot of assets and we are engaged on getting maximum value for those loans and assets. We have restructured to our satisfaction, about half of the loans. Our target for the end of this year is about 60 per cent and we are close to that.

 

 

Why does AMCON want to refinance part of its bonds by December? And how will AMCON pay that money when they can pay next year when the bonds are not due?

 

 

The reason why we are calling back the other bonds is we have an interest rate of 13 per cent on average and we are going to refinance them at six per cent instrument, which would save us seven per cent of interest and that way the cost to the system is reduced. But beyond that, we think it is important for everyone to know that AMCON when it gets money, pays down its debts, so that the size of the debt gets smaller so that by year 10, AMCON will be a small institution. This is a resolution vehicle and not a permanent thing and Nigerians need to see that it is getting smaller. I think that is important. But keep in mind that we would be refinancing N3.6 trillion with the central bank in December. So what happens is that the Central Bank of Nigeria will give us N3.6 trillion while we give them bonds. From that N3.6 trillion, we would pay back series 1, which is N1.7 trillion, series 2, three and four. So it is actually a comprehensive plan. But the next resolve is that the CBN would be the only holder of AMCON’s bonds.

 

 

What do you think will be the likely effect of the bond refinancing on the market?

We said bond holders should elect how they want to be paid by November 19, either through cash or treasury bills, and then the payment would be made by the same method as at December 30th when the fund would hit the market. So, the central bank in line with its monetary policy function will have enough time to dimension the impact on the market. Like I said earlier, we have a working team at AMCON and the central bank on the impact on the refinancing. So between 19th of November and 30th of December when the payments are likely to hit the market, the central bank already knows what is coming into the market and what instrument they need to put in place to mop up whatever excess cash that would get to the market. So we don’t know because we are not the CBN.

Please give us an overview of AMCON’s 2012 financial performance. And what are your plans for Tinapa?

In summarising AMCON’s 2012 performance, I would say we recorded increasing momentum, reduction of muscles and I would be optimistic and see light at the end of the tunnel. For Tinapa, it is in our opinion, a worthwhile project. We believe that the amount of travel savings and even travel income we would get from Tinapa achieving its potential is significant. Tinapa has debts and they couldn’t finish everything they wanted to do in Tinapa because of the financial crisis and they couldn’t get the loans they wanted to get. So you have a situation where you have a beautiful facility but not totally complete. So our challenge since we inherited the debt was the best way to get our money back and to do something for the Nigerian economy. Our conclusion was we would partner Cross River State government and we would finish Tinapa. But we would own the controlling interest in Tinapa and we would manage it professionally with a profit motive and since we are a government institution, we would liaise with key critical people such as the Customs and the Nigeria Waterways Management and even on infrastructure around the area. If we are going get a lot of travelling, we need to improve the airports.

So there are a number of things that we felt as the owner we can accomplish and bring Tinapa to its full potential. So the agreement is that we would put in money to finish it, we would own 85 per cent of Tinapa and when it becomes operational, we would sell it and then people would buy it. We are in a position to make all these things happen in conjunction with the Cross River State government. It will be a good thing. A lot of Nigerians go to Dubai and that is our target. The agreement till date is that we will put the money in, the Cross River government will support everything we are doing, but most importantly, it will be managed professionally and we are going to advertise for operators of international standard that had done this before and they must come with a plan that will include our exit plan. So, it is being done properly and I think Tinapa will be something that everybody is going to be proud of. We hope to appoint the operator before the end of the first quarter of next year and once that is done; you will start seeing things about Tinapa. I think that by the end of next year, which is by the next Calabar carnival, Tinapa will have more hotel rooms, major shopping locations and I think that Tinapa is something that will remain in the consciousness of Nigerians for years after AMCON’s activities.

 

 

What is the size of AMCON’s balance sheet and how much is it holding as liquid asset?

Obviously as you can see, the balance sheet is shrinking. Part of the agreement is that AMCON has to pay down its debts, so that by the time we get to year eight, the outstanding bonds would be significantly reduced. Every anniversary, we look at the sinking fund and AMCON’s charges and we reduce the bond. So it is actually declining in terms of the size. In terms of how much we are holding in liquid assets, as at October, we were holding almost N1 trillion of various assets. In addition to AMCON’s resources, there is the sinking fund, which was set up solely for the purpose of resolving or refinancing AMCON bonds. As at today, between AMCON bonds as well as the sinking fund all bonds that are maturing would be fully paid.

What is the operating cost in 2013?

Our total operating cost is about 0.7 per cent of our total cost. AMCON’s operating cost as a percentage of assets is very low anywhere in the world. We have 10,000 bad loans we are restructuring and we have less than 300 staff. So, our operating cost is very tightly managed and from any asset management corporation in the world, in term of assets-to-cost, loans-to-cost, it is extremely low and it is under one per cent of our total cost. So it will be very unfair for anybody to look at our operating cost and raise issue. Our real cost is the cost of the bonds and that is what we are trying to manage by the refinancing strategy so as to bring it down, so that it becomes more manageable

Capital Oil is also a passionate matter to a lot of Nigerians. What is the status of the company?

Capital Oil owes AMCON money and we have a restructuring plan that we filed in court. The restructuring plan depends on certain things to happen and all of those things haven’t happened, so the plan is not really effective. The only thing that happened and as a matter of emergency, was that we felt that a company like that, if the owner was not giving it its full attention that we should go in there and manage it. So  we agreed with him that if he was going to focus on his governorship aspiration, which is his right, we would not allow the place to be stagnant while he is doing that. So we took over the management of the place for two years to make sure that everything is done right and that was what we did. But all the conditions and terms of reference had been filed in court. But the key condition that is holding the transaction is that we needed assets of certain amount and he hasn’t given us the assets yet. So it is a debt recovery in progress, but it is nothing special. It is not more important than Delta Steel or anything else. It is not one of our biggest debts or one of those that are important to the economy.

 

 

What is happening to Delta Steel, another company you also acquired its debts?

There was a debt, it was mismanaged. We are also looking for somebody who can buy the place, run it and bring it back to what it used to be. So we are in the process and we would sell it but we want to make sure it is sold to the right person. We are not going to sell it and the place runs down.

 

 

AMCON recently advertised for the sale of an aircraft it got from one of its debtors. Has the aircraft being sold?

We, at AMCON, have not embarked on wholesale disposal of assets. What we have is an asset disposal policy approved by the board and what we do is that if we have an asset that we consider to be a non-earning asset, we may sell it and we may sell it subject to certain terms and conditions. One of it is the airplane, which was gotten as a result of a debt restructuring. We have advertised for the sale of the aircraft and we are in negotiation with someone who had the highest price. Neither I nor anybody in AMCON wants that plane on our book any day longer. So we will sell it.

 

 

In terms of AMCON’s lifespan, in your opinion, don’t you think it is important to have continuity or are we saying if there is another banking crisis in the future another AMCON will be set up?

 

 

For me, I think we should make AMCON like what they did in Malaysia. That is to reduce its size and put it in the Nigeria Deposit Insurance Corporation (NDIC) and make it a department there. So that if there is a crisis in the future, but I don’t think there will be any, you can bring it out and re-staff. But I don’t think it is good to keep a big institution like AMCON out there forever. So I would want it to be very small with about five members of staff as a department of the NDIC 10 years from now.

 

 

What is the motivation behind the proposed amendment to the AMCON Act?

For the proposed amendment to the AMCON Act, the motivation behind that is a singular one, which is to put the sinking fund agreement into law so that nobody can come five years from now and say he wasn’t there when the agreement was reached. A new Central Bank of Nigeria (CBN) governor or managing director of bank can come tomorrow and say he or she wasn’t there. The reason is to protect the Nigerian people because we have rescued the banks, we have rescued depositors and they have agreed to pay for a period of 10 years and you must hold them to do that. Now that they are all saying the levy is killing their incomes, go and look at the incomes and taxes paid by banks in 2010, 2011, 2012 and 2013 and tell me that they have reason to complain about AMCON.

Now that the expression of interest for Enterprise Bank is over, when do we expect the sale process for the bank to be concluded?

We are being extremely careful in selling those banks. We would love to go and sell the banks tomorrow, but we may spend the next five years defending it and the person we sell it to may turn out to be my brother. So, we have to be very careful. So the process is going on transparently, we are doing it sequentially, we are doing Enterprise first, then Mainstreet and Keystone in that order. So if you want us to guess, I can hopefully guess that the process would be concluded by the end 2014 and may even get to early 2015. We would sacrifice speed for transparency so that everybody will be satisfied about the process and we can be proud of what we did.

 

Bio Data

Mustafa Chike-Obi was previously the founder and managing partner of Madison Park Advisors, a financial service advisory and consulting firm in New Jersey, United States specialising in hedge fund and private equity investment advice.

He has also held senior positions in various Wall Street firms including Goldman Sachs, Bear Stearns and Guggenheim Partners among others.