AMCON takes off with three major operational policies
By Bassey Udo

November 9, 2010 02:40AM


The Board of the Asset Management Corporation of Nigeria (AMCON) yesterday swung into business, swiftly rolling out three major policy decisions.

In its first formal meeting concluded late last night in Abuja, the board announced that AMCON will value non-performing loans (NPLs) backed by shares of listed companies at an implied premium of approximately 60 percent on the 60-day average of recent prices ending November 15th 2010, while those backed by other perfected collateral would be accepted at the most current estimate of the loan value supplied by the institution, but for this category, AMCON put a caveat, "there must be a post-transaction adjustment agreement that allows AMCON to independently value the loan as of the transaction date of November 15th 2010."

According to the corporation, all unsecured loans or loans with ineligible collateral will be valued at 5 percent of the principal value.

Explaining the underlying assumptions for the valuation, which it said is solely for the purpose of buying the NPLs and not for recapitalisation of the banks, the Board said that it could be that "a fair value ascribed for the purposes of buying the NPLs would be two times book value and this premium approximates that value."

Besides, it said the estimate for the valuation must be based on current market analysis of the collateral and a written guarantee of good faith by the institution. The valuation methodology, the Board said, has been consented to by the Minister of Finance, Segun Aganga, the Central Bank of Nigeria (CBN) governor, Sanusi Lamido Sanusi, and the affected banks.

[b]Reiterating its mission to acquire non-performing loans across the banking industry, recapitalise the rescued banks, and manage the acquired assets, the board also announced its approval of the purchase of all the margin loans in the banking sector and all the non-performing loans of the rescued banks, totaling in excess of N2.2trillion.

In addition, the board approved a funding model for AMCON, based on conservative estimates of recovery rates and return on managed assets, pointing out that with the agreement already reached with the banks to contribute to a sinking fund, AMCON board is satisfied that the Federal Government guarantee will not need to be invoked at the end of its expected ten year life span.

While expressing optimism that AMCON would reach agreements with the selling institutions regarding pricing of the NPLs by November 15th, 2010, the Board said AMCON aims to settle these transactions on or before December 30th, 2010, to allow the institutions to obtain the necessary Board and Shareholders approval, whilst also giving AMCON the time to establish the necessary operational structures to settle these purchases.[/b]
Industry reacts

For Tope Fasua, a Dubai, UAE-based investment management specialist, taking over bank assets that were secured with equities at 60 percent of original value will, in reality, be more than what those shares are currently worth, considering that the value of most of the distressed loans secured with shares declined by over 90 percent.

"Valuing such loans at 60 percent is, therefore, quite magnanimous. The capital market is likely to receive that news most favourably, because such shares would generally be growing to the value placed on them by AMCON. People would naturally buy bank shares, insurance shares, since the AMCON has put its money on those shares at much above their current values," he said.

On loans secured against landed property, Mr. Fasua said the problem usually associated with it is that because of the nature of valuations in Nigeria, they are often ‘fictitious', adding that the value people usually put on a property is at best mere conjecture.

According to him, a property is only worth N1billion when one is able to sell such a property and realise the money, notwithstanding what the estate valuers, rating agencies, bank managers, or even AMCON, says, predicting that the new policy will create a new market for those who are ‘experts' at valuing properties.

"Some will dispute the values already placed on such properties, while some will reach a ‘compromise' at the end of the day. AMCON can only find out if their ‘evaluation' of a property is wrong and ‘adjust afterwards', if and only if, it sells such properties and compares the value received with the value on paper," he said, noting that in Nigeria, those scenarios are rackets.




http://234next.com/csp/cms/sites/Next/Home/5640034-146/story.csp#

Good to see that AMCON has to work immediately. That should give the markets some fillip.

I agree with the analyst that those valuations are very generous.

AMCON: Loan purchase to enhance sale of rescued banks, say analysts .

Wednesday, 10 November 2010 00:00 Blessing Anaro & Iheanyi Nwanchukwu  . .•Chike Obi says AMCON will take over N620bn debt


Approval by the board of the Asset Management Corporation of Nigeria (AMCON) for the Corporation to buy non-performing and margin loans will ease the sale of the eight banks rescued by the Central Bank of Nigeria (CBN), analysts assured yesterday.

Notable analysts who spoke with BusinessDay expressed confidence that the move will stabilise the stock market and encourage banks’ lending to the real sector.

The move, they say, give an assurance that the non-performing and margin loans weighing down the banks will be taken off their books and thus encourage hesitant investors to take bolder steps at acquiring the banks.

A particular analyst puts it succinctly that the action taken by the AMCON board will serve as the “balm to the future of the banking industry, as it will become more secured than ever.”

Victor Ogiemwonyi, managing director and chief executive of Partnership Investment plc for instance said: “I think AMCON has shown that it will take its job seriously. Their actions to date and the speed and fair value given to assets they are acquiring in this first phase, have given them credibility. The implication for the market is very positive”.

He said once all the toxic assets are taken off the books of the rescued banks, they will now have the room to resume lending to the economy.

Ogiemwonyi also believes that the stock market will soon begin to see positive upward movement that will allow its asset inventory close higher this year.

The anticipated situation, he said, will be good for those who have invested in the stocks market, adding that they will all close their books with better valuation for their stock market portfolios and lifting asset valuations of all companies. “We have long advocated that AMCON was the right way to go,” he said.

In the same vein,  Tope Fasua, a Dubai, United Arab Emirates based investment management specialist, said taking over bank assets that were secured with equities at 60 percent of original value will, in reality, be more than what those shares are currently worth, considering that the value of most of the distress loans secured with shares declined by over 90 percent.

Quoting Renaissance Capital, Tope said: “Valuing such loans at 60 percent is, therefore, quite magnanimous. The capital market is likely to receive that most favourably, because such shares would naturally buy banks shares at much above their current values,” he said.

On loans secured against landed property, Fasua said the problem usually associated with it is that because of the nature of valuations in Nigeria, they are often fictitious, adding that the value people usually put on a property is at best mere conjuncture.

Bismarck Rewane, chief executive officer of Financial Derivatives Company (FDC) Limited told Business Day in a telephone chat that he is confident that the asset management firm under Mustafa Chike-Obi will be professionally run, and it will go about the business in a very prudent manner.

He said though banks share price may have risen a day after the announcement of loan purchase by the asset management firm, there is no definite reason or information to drive such movement apart from those based on speculation.

Bismarck said with what is on ground now, any future occurrence of the incident that brought banks to their knee could easily be nipped.

Meanwhile, Chike-Obi, managing director of AMCON has said the bail out fund given to the banks will be taken over by the asset company.

Chike Obi who spoke with CNBC said, its operation will be in stages. The first stage he said will be to buy the loans, followed by recapitalization to zero equity position, then find strong partners.

For now, the managing director of the asset company said margin loan accounts for 50 percent of the N2.2 trillion loans, while non-performing loans accounts for the remainder portion. He however said 10 to 20 percent of margin loans are unsecured.

Based on the fact that AMCON is acquiring very large amount of loans, he said the loans will be acquired on a premium basis, saying this is to ensure transparency.

“AMCON is a resolution vehicle to ensure that banks do not fail”, he said.

http://www.businessdayonline.com/NG/index.php?option=com_content&view=article&id=16065:amcon-loan-purchase-to-enhance-sale-of-rescued-banks-say-analysts&catid=76:hot-topic&Itemid=564

Are we still at policy stage?

Am sure the TARP fund was up and running within a few weeks.