AMCON, instead of killing businesses and private initiative, should be at the vanguard of creating Derivative instruments in the Nigerian Capital Market.
Our policy makers must understand that most honest business ventures cannot survive under our present interest rate regime. Is it in agriculture, Manufacturing, Solid minerals, housing etc? Our interest rate structure is only suitable for commerce – buying and selling. These are businesses that are concluded within one year. Within this period, the trader/investor takes his gains/losses and move on. When a business is of the longer term, the average interest rate of 25% is the sure foundation for liquidation.
Some years ago, I was particularly disturbed when AMCON acquired the N25b facility of Geometric Power from Diamond Bank and the N100b facility of First Bank for SeaWolf oil Services. Geometric had secured the facility to build a power plant in Aba and SeaWolf used their facility to acquire drilling rigs. These are projects with long gestation and cannot survive with a commercial interest rate. SeaWolf did not survive this take over.
It is in the news that the current customer of the undertaker activity of AMCON is the Silverbird Group. it is reported that AMCON has taken them over for their indebtedness of about N11b. I hope that this takeover would not be with the intention of breaking up the group, stripping their assets and selling them in parts. This is not good for the Nigerian economy. It has negative implications for productivity, employment and entrepreneurship.
AMCON can be a veritable instrument for economic growth if their focus and activity is restructured. I would advise that, going forward; AMCON should buy those debts from Commercial banks and securitize them into bonds and sell in the Stock Market. This would shift the focus of the Nigerian Stock Market from equities to bonds. It would be a win – win situation for everyone
How will this operate? Using the Silverbird N11b debt, as example, AMCON can buy this debt from the Banks at N9b and subsequently create bonds through a process called SECURITIZATION. This measure would clean the banks books, removes the vicious interest rate and allow a going concern to contribute to economic development.
The N11b debt can be broken into bonds of N1000 each. This would give us 11m bonds. With a coupon of 5%, the bond would be more attractive than the 3.6% obtainable in the money market. The bond can be for tenure of 20years. This is a tenor that can offer a lot of flexibility to the Silverbird Group, who would need to be servicing the derivative with only about N60m annually.
This is a bond that AMCON would fully underwrite, to attract investment from Pension funds, hedge funds, and high net-worth investors. If appropriately structured, it would need only about 1100 investors, or even 11 investors to buy it up.
This would be a win-win for everyone, as AMCON would definitely be making more money in the long run. The company would continue to operate, providing jobs and livelihood for many people.
This is the sort of thinking that should be governing Corporate Finance in Nigeria. It does not pay us to have a smiling undertaker.
Simon Osigwe, is CEO, Scientific Trust Investment Ltd, Lagos, Nigeria, and a progressive financial analyst