IFC $70M CONVERTIBLE SUBORDINATED LOAN TO DIAMOND BANK

In what is yet another indicator of its rising credit rating in the market, Diamond Bank has been granted a $70million 7-year convertible subordinated loan by the International Finance Corporation (IFC) and Africa Capitalization Fund Limited (a specialized IFC-fund set up and managed by IFC Asset Management Company to assist banks in Africa in raising capital to fund growth).  The facility which qualifies as Tier II capital was agreed after a thorough due diligence by IFC as is usually the case with all its investments and reinforces IFC’s confidence in the bank.

Diamond Bank considers the dollar denominated investment appropriate for its medium and long term funding strategies given the high naira interest rates regime, dearth of such long term financing in the Nigerian financial markets and the depressed domestic equities market which would have made local borrowing and equity issuance a lot more expensive. Moreover, the Bank’s current capital structure is optimized with the issue of debt capital rather than equity. Injecting tier 2 capital into the balance sheet will help the bank to achieve a lower weighted average cost of capital and boost the Bank’s capital adequacy ratio (CAR), while providing a veritable source of funding for customers’ business and the Bank’s expansion plans.

The subordinated nature of the facility also conveys the sort of confidence the IFC has in the Bank. Subordinated debts are clean unsecured debts, which rank below other debts and have lower priority in the hierarchy of repayments (below senior debt, taxes and other financial obligations). They stand in contrast to senior debts which are secured against assets of the borrower and repaid first in the hierarchy of obligations of the borrower. Consequently, Lenders are generally more willing to issue senior debts than subordinated facilities. However, in this case the fundamentals of the Bank and its future competitiveness and profitability are sufficiently strong to warrant an international prudent investor like IFC to make such investment. It is worthy to mention that this is the first subordinated Tier 2 instrument in the Nigerian banking space.

The facility is also convertible, which gives the IFC entities the option to convert the debts into equity at pre-agreed price per share within agreed timelines in the future. This is another stamp of authority on the Bank and its Management as the IFC truly believes in the growth potentials of the Bank to seek to become a core shareholder in it. This speaks to the existence of excellent corporate governance culture in Diamond Bank Plc. It is also an attestation to the confidence the new management under Dr. Alex Otti, which took over running of the bank in March 2011, has engendered for the bank amongst existing and potential customers and investors.

The facility will go a long way in helping the bank expand its retail banking footprint across Nigeria and West Africa, and strengthen its ability to grow its micro small and medium enterprises banking business. With its reputation as the leading SME Bank, the Group Managing Director had indicated in March 2011 that it would continue to make funding available to Small and Medium Scale Enterprises in the real sector of the economy as they are acknowledged as the undisputed engine of economic growth and development.

Diamond Bank is a leading and respected bank in Nigeria, with close to 250 branches around the country, noted for its excellent service, driven by innovation and delivered through the most advanced banking technology platform in the market. It currently offers full range of banking services through its offices in Republics of Benin, Togo Cote D’Ivoire and Senegal. Diamond Bank has over the years leveraged its underlying resilience to grow its asset base and successfully retain its key business relationships. The Bank posted a net profit before tax of N15.4 billion in the half-year ended 30^th June 2012, representing an increase of 413% from the N3 billion it recorded in the corresponding period of 2011. Total assets stood at N960 billion as at 30^th June 2012, a growth of 20% from the 31^st December 2011 position of N802 billion. The Bank’s industry leading net interest margin is sustainable considering its growing retail liabilities. Accordingly, the Bank is well-positioned to deliver steady and growing returns to its shareholders in 2012 and beyond.