No dividend for Ecobank shareholders
Shareholders of Ecobank Transnational Incorporated (ETI) will not receive any dividend this year due to a string of losses prompted by the recession in Nigeria and a strong U.S. dollar led to a loss for 2016.
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The bank in 2016 made a loss of US$81 million compared with a profit of US$ 51million in 2015.
This was largely due to the impairments taken to write down the loans.
Chairman of the board of ETI, Mr Emmanuel Ikazoboh, said at the bank’s 29th annual general meeting in Lome, Togo that, “due to these challenges suffered by the bank, the board is unable to recommend the payment of a dividend in respect of 2016 financial year.”
“We cannot currently give shareholders reassurance regarding the resumption of dividend payments”.
That, he said, was dependent on a number of factors including the expected recovery in economic activity and an improvement in the credit risk environment.
Ecobank said it swung to a loss before tax of US$131.3 million in 2016, from a profit of $205.2 million a year earlier.
$400m convertible bonds
The shareholders have consequently, approved a US $400 million convertible bond issue to strengthen the bank’s capital position.
The bond will have a maturity of five years and a coupon of 6.46 per cent above 3-month LIBOR, with an option to convert at an exercise price of six US cents during the conversion period.
Mr Emmanuel Ikazaboh said proceeds from the bond would be used to settle the bank’s legacy loans and to optimise the maturities of the group’s debt portfolio.
The pan African bank in 2016 suffered some declining revenue as a result of its decision to absorb an US$864 million of impairment losses, US$651 million of which were booked in the fourth quarter served to turn a resilient underlying performance into a pre-tax loss of US$131 million in 2016.
The bank’s 2016 gross earnings was US$2.60 billion as against US$2.75 billion in 2015. It recorded a loss before tax of US$131.3 million as against a profit of US$205.2 million a year ago.
Ecobank's losses prompted one of its biggest investors, South African lender Nedbank, to write down the value of its 20 per cent stake by 1.1 billion rand.
Nedbank bought its stake for US$500 million in 2014. After the write down, it is worth 2.9 billion rand ($217.49 million) on Nedbank's books. It had been worth 7.8 billion rand in 2015
Commodity prices
The bank has been hit by its exposure to central and West African economies that have struggled with weak commodity prices.
With regard to the planned $400 million bond issue, the bank said it had received interest from existing investors for $300 million. Nedbank said it was not participating.
Ecobank said US$200 million of the cash raised would repay funds used to set up a "bad bank" to resolve non-performing loans. The rest will be used to restructure the holding company's debt profile.
The bonds will be on offer to all Ecobank shareholders on identical terms shortly.
Legacy assets
“We are delighted with the strength of the support shown for the issue by our existing shareholders, as it vindicates the vigorous action taken to address our challenged legacy assets, as well as indicating their confidence in Ecobank’s future”, the board chairman said.
“Nevertheless, it is a matter of great regret that the board was unable to recommend the payment of a dividend in respect of 2016,” he continued.
“Ecobank’s senior management is united in its firm resolve to work urgently, yet diligently, to reinstate cash dividends as soon as ETI’s financial position permits,” he added.
“Your board is confident that Ecobank will generate more than satisfactory returns, once our legacy issues have been finally resolved. We have now stabilised the situation and are making real progress in dealing with the outstanding issues”
Group CEO of Ecobank, Mr Ade Ayeyemi said, “despite continued macroeconomic challenges in some parts of the continent, all of our businesses are making meaningful progress, with an ongoing focus on cost discipline, stringent credit control and the increasing digitisation of our services to enhance the customer experience”.
“We are proactively resolving our legacy loan issues, achieving US$2 million of recoveries from the Resolution Vehicle in the first quarter of 2017. I am confident that these positive developments will be reflected in an improving performance from Ecobank going forward.”—GB