Nigerian Stock, Africa’s Second Best . . . DaMina

By EMMA OKENYI
Nigeria’s main stock index, Africa’s second-best performer in the first half of this year, may gain a further 20 percent in 2010 as the government absorbs the bad debt of the country’s banks, DaMina Advisors said.

The 213-member Nigeria Stock Exchange whose 21 percent gain is second in the continent to the 28 percent advance of Kenya’s benchmark index, may reach 30,490 by year end from 25,409 on June 30 as the Asset Management Corporation. set up by government to buy toxic assets from lenders starts operating, said Sebastian Spio-Garbrah chief executive officer of DaMina.

If Amcon does “only half of its work well,” this will still trigger “a consolidation in the banking landscape, catalyze more foreign interest in the local market, and spur it to even higher values by year end,” New York-based Spio-Garbrah said by e-mail. Banks, which make up about 60 percent of the Nigerian equities market by weighting, will lead the resurgence, he said.

A debt crisis in 2009 left the country’s lenders with toxic assets of about $10 billion, Spio-Garbrah estimated a year ago while working as an Africa analyst at Eurasia Group. The central bank of Nigeria fired the top managers of eight of the 24 bank chief executives and gave the industry an injection of N620 billion ($4.1 billion) to stem the decline. Buying that debt will cost the central bank “roughly” $5 billion as commercial banks don’t have collateral to cover the bad loans, Central bank Governor Lamido Sanusi said last week.

“Although the Amcon is itself initially capitalized by less than $100 million, it will have the authority to issue up to $5 billion in Nigeria sovereign-guaranteed bonds to buy the impaired assets from the banks,” Spio-Garbrah stated.

Some stocks that will benefit include First Bank of Nigeria Plc, the biggest bank by market value, United Bank for Africa Plc and Zenith Bank Plc, he said. These banks would want to “unload their difficult and bad debts in exchange for fresh cash,” he said.

Others that will increase are First City Monument Bank Plc, “which was just on the cusp of the crisis,” and bailed-out banks including Oceanic Bank Plc, Unity Bank Plc and Afribank Nigeria Plc.
The national assembly passed the Amcon bill on June 23, and the document now awaits assent by President Goodluck Jonathan before it becoming law.

CBN boss, Sanusi said last year that he expected the law creating the company to be passed by December 31, 2009, and that it would start operating in January this year. The central bank extended the recapitalization deadlines for two bailed-out banks, Wema Bank Plc and Unity Bank Plc, by three months, the central bank said last week.

Amcon “will face its toughest hurdles in pricing the impaired assets and in the choice of assets to buy,” Spio- Garbrah said. “If Amcon is successful, Nigeria will emerge with some of the best capitalized banks in Africa.” It will also “catalyze an expansion of money supply and unfreeze credit,” he said.