Ecobank has been looking to raise its capital adequacy ratio to 18.7 percent of assets by year-end, prompting it to urge South Africa’s Nedbank to convert its $285 million loan plus a further $206 million to a 20 percent stake in ETI, just as the bank had in 2013 said it wanted. The purchase of the 12.4 percent stake might have however helped ETI achieve its proposed capital adequacy ratio; it even gets better with the new deal.
Ecobank CEO, Albert Essien said after the first QNB acquisition that he expects the bank’s capital adequacy ratio to hit
18.7 percent following the purchase.
Although Nedbank has an alliance with Ecobank that dates back to 2008, the arrival of an institutional investor like QNB might have changed the game, although it may not stop the South African bank from exercising its debt conversion rights, if it acts before the end of the 12-month window for a deal. One thing however remains a positive for Nedbank, it is QNB’s focus on Middle East and North Africa. Nedbank’s long-term plan to take a majority stake in ETI may however not be possible as QNB is expected to win any potential bidding war.
“We believe the arrival of an institutional shareholder such as QNB provides ETI with deep pockets should it need to raise more capital in future, which we think remains a possibility,” said financial services firm, Renaissance Capital (RenCap) in its analysis of the deal.
RenCap described ETI management’s ideal scenario as one that would not have any person or institution control more than 20 percent of the group’s capital, “and this has been made clear to both QNB and Nedbank, which holds convertible debt.”
“We estimate that post Nedbank’s conversion and top-up to a 20 percent shareholding, QNB’s common shareholding drops to 17 percent from 21 percent, but rises to 19 percent after it converts its preferred shares to common share
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