LAGOS (Reuters) - Nigeria's state asset management company (AMCON) is on track to buy all bad bank loans by the end of December and recapitalize nine lenders rescued last year by the second quarter of 2011, its chief executive told Reuters in an exclusive interview.
Mustapha Chike-Obi said late on Monday that AMCON would register to issue up to 3 trillion naira ($20 billion) in tradable bonds, although it expected to use only 2.4-2.6 trillion naira in the recapitalization process.
The "bad bank" was set up to help recapitalize the banks rescued in a $4 billion central bank bailout last year and to restore lending in sub-Saharan Africa's second biggest economy.
It will issue bonds to fund the purchase of non-performing loans across the banking sector and to enable it to bring the nine rescued banks' negative shareholders funds back to zero.
"We are going to be filing a registration ... (which) allows us to issue up to 3 trillion naira. We will issue bonds in tranches as needed," Chike-Obi said in his office in the commercial capital Lagos.
"The first tranche will be something in the area of maybe 500 billion naira. As we do deals and we need to recapitalize the banks one at a time, we will issue bonds specifically to meet any needs we have," the former Goldman Sachs banker said.
Central Bank Governor Lamido Sanusi won international praise for last year's bailout and efforts to sanitize the banking system, which was dangerously close to collapse. The focus has since shifted to AMCON, a resolution vehicle unprecedented in Nigeria which aims to get the sector back on its feet.
Chike-Obi estimated that 900 billion naira would be needed to absorb total non-performing loans and a further 1.5-1.6 trillion naira would be needed to bring the lenders rescued in the bailout back to zero from negative shareholders funds.
The total issuance by AMCON could be several times what the Nigerian government usually raises in the debt market each year, raising concern from some analysts that the market could struggle to absorb the bonds, pushing up yields and interest rates.
Nigeria raised around 1 trillion naira through government bond issuance in the first 10 months of 2010.
Chike-Obi said AMCON bonds were replacing existing non-performing assets and that he did not expect the rescued lenders to trade them immediately.
"It would be very unwise for any bank to rush to the market and liquefy those bonds. Our expectation is that these banks would hold onto those bonds because they are yield assets and, as they make loans, they will liquefy them and fund the loans."
He anticipated that in the first year, 300-500 billion naira worth of the bonds would be introduced into the market, a volume which he said could easily be absorbed.
After Nigeria's central bank bailed out the nine lenders, deemed to be so weakly capitalized that they posed a systemic risk, it began seeking new investors to recapitalize them.
AMCON's role is to absorb non-performing loans and restore shareholder funds to zero, but new investors will be needed to return the lenders to minimum capital adequacy and bring them off the central bank lifeline.
AMCON's role is to absorb non-performing loans and restore shareholder funds to zero, but new investors will be needed to return the lenders to minimum capital adequacy.
"There has to be a binding deal in place before AMCON recapitalizes the banks," Chike-Obi said.
"We will agree to take the bank to zero shareholders funds, agree with existing shareholders on the relative ownership of the bank, and this is conditional on a binding M&A deal being in place," he said, adding he was confident this would be the case.
"We expect all M&A, everything to do with this banking crisis to have been completed by the second quarter."
Several rescued banks have announced in recent weeks that they are in exclusive talks with investors.
Chike-Obi said there would be no case in which AMCON would end up holding a majority stake in any of the banks.
He said AMCON had written to all the banks asking them to sell their non-performing loans and expected a deadline of the end of the year to be met.
Those bad loans would initially be exchanged for "consideration bonds" which the banks would hold while AMCON registers fully tradable debt instruments. They would then be retired and exchanged for liquid bonds some time in January.
"We think that when the banks publish their accounts next year, none of those banks will have any non-performing loans on their books," he said.
(For more Reuters Africa coverage and to have your say on the top issues, visit: af.reuters.com/ )
Writing by Nick Tattersall; Editing by Ron Askew