RECAPITALIZATION: No worries for Diamond bank as shares hit 30% trade
Recapitalization – In the last three days, Diamond bank shares jump 30% increase to further steady the ship, which was at eminent collapse following speculations of sales and distress.
Diamond bank recently receive d CBN approval to operate as a national bank following the sales of DB UK.
However, on operating as a national bank, the bank now requires 10% recapitalization against initial 15%.
This had somehow placed the bank in a far financial stable stand, which will regain trust from investors.
The head of research at Sigma Pensions, Mr. Wale Okunirinboye said: “Investors that feared the worst are now regaining trust with ease, having understand that the bank is no longer in desperate need of to raise fresh capital.”
Shares of the Lagos-based bank climbed 8.97 percent to N0.85 per unit, Wednesday, as it followed up on two day gains of 9 percent each on Monday and Tuesday.
Some 15.1 million shares of the bank were traded Wednesday, the third highest volumes after First Bank and Access Bank.
“The share price rally could be sustained if the excess capital unlocked from the reduced adequacy ratio is used to clean up the bank’s balance sheet,” said Tajudeen Ibrahim, head of research at Chapel Hill Denham.
“That may come at a cost to capital adequacy ratio but could prove a game changer,” Ibrahim added.
Yields on the bank’s $200 million Eurobond due 2019 also fell to 29 percent December 5, after hitting as high as 30 percent last Friday, according to FMDQ data.
A torrid month of November had seen the bank slapped with two credit downgrades in the space of one week by global ratings agencies Standard & Poor’s and Moody’s.
Chioma Afe, the Bank’s spokesperson, said “the recent approval of the bank’s National license by the Central bank has provoked positive reactions and feedback from both retail and corporate customers.
“It has shown the bank’s stability,” Afe said in a text message to Business Day.
The retail lender sold its West African operations about a year ago to focus on Nigeria, and is in the process of selling its U.K. unit, which Stanbic IBTC Stockbrokers estimates could fetch from $60 million to $70 million.
Diamond Bank’s dollar obligations next year also include a $51 million International Finance Corp. loan, according to Stanbic IBTC.
“Ultimately, if we get clarity on the financial close of the sale of the U.K. entity, we get more comfort in terms of understanding the road map for Diamond Bank to meet its important Eurobond obligation due in May next year,”
Stanbic IBTC Stockbrokers said.
Diamond Bank said last week that it was confident it can meet its obligations, and was in talks with unnamed development finance institutions and multilateral agencies for dollar funding to help it meet the Eurobond repayment.
Diamond Bank is among small Nigerian lenders trying to recover from an economic contraction in 2016 and a decline in oil prices that caused bad loans to rise above the regulatory threshold.
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