GTB heading to the capital market to raise $750m

[Stockmarket_Voyeur]

"The lender intends to raise $500m from international investors by selling global depositary receipts and the rest from Nigerians, according to a Blomberg News report quoting three people with the knowledge of the transaction"


"The report quoted GTBank as saying in a statement on Monday that JPMorgan Chase & Co. and Morgan Stanley would manage the internal arm of the offering while Afrinvest Limited would coordinate the sale in Nigeria"

Full article is at the following link:

http://www.punchng.com/Articl.aspx?t...20070704263457

[oseitutu]

Wetin be Depository Reciepts? Are they like Bonds or are they promisory notes?...
I found this on Proshare

[Stockmarket_Voyeur]

Depository receipts are really just evidence of ownership of shares but they are issued/marketed strictly towards international investors.

The investopedia definition is here:
http://www.investopedia.com/terms/d/...aryreceipt.asp

So I guess this means GTB intends raising some of the money from international investors and the rest from the NSE (another PO?)

[tbabatunde@yahoo.com]

For a short time investor, does the above indicate if it is a good time to buy GTB or to wait for their PO. Advice Pls

[Stockmarket_Voyeur]

Hi tbabatunde... I didn't say there would be a PO..I was just speculating.

Anyhow, it is a rather pricey venture. The proshare link that Oseitutu provided says the following:

....likelyhood that a Nigerian Bank will be launching a $750m GDR from Monday, July 9, 2007 for a period of 10 days (2 weeks) ...................
We will, from Monday begin to provide more detailed insight into such investments which may come in blocks of N500k per purchase in one of the country's best managed banks

[oseitutu]

I am still worried at the rate the Nigerian Banks are growing "organically" and having more and more funds at their disposal. The sad thing is that I am yet to see real banking. The investors want returns on their equity. This is the second year post consolidation and the best these banks can do is outrageous loans with unreasonable conditions! We may be in for surprises when returns turn out to be at great variance with expectations. The resultant effect would be a big bang. I think that is why some banks are already moving abroad. That way the expectation would not be 30-100% returns, but modest figures like 3-9% growth will be applauded. The ill-experienced Nigerian speculator-cum-investor-cum-retirement saver will expect 100% and when they do not get that they will migrate en-mass back to China to import goods! GTBank is covering itself and that is a good thing.

[Onwuka Iroabuchi, S]

[quote=Stockmarket_Voyeur;3408]"The lender intends to raise $500m from international investors by selling global depositary receipts and the rest from Nigerians, according to a Blomberg News report quoting three people with the knowledge of the transaction"


"The report quoted GTBank as saying in a statement on Monday that JPMorgan Chase & Co. and Morgan Stanley would manage the internal arm of the offering while Afrinvest Limited would coordinate the sale in Nigeria"

Full article is at the following link:

http://www.punchng.com/Articl.aspx?t...20070704263457 (not a permalink){QUOTE]



Bros

This is good news but it's still pretentious. It is good news because since they are not throwing money around...but are inviting Nigerian to participate in thier business.

But the same Bloomberg news yesterday quoted U.S financial advicers...saying that they are predicting a 10% major downturn of stock profit by next year. This highly accalimed group adviced in thier report released yesterday of a possible correction of currenct stock profit.

Jp morgan, Samuel Chase, Charlse Schwabs and Morgan/stanley are among the Holding/ but not necessarily founding families of New york stock Market. They are full time masters of the recurrent system of money management that is based on a 10-12 year note/money circle. This is why these banks are offering receipts to hedge against thier seveal not-so-sure investment, and of course the money is already there or world be by next year.

The default on this $500m is $250M...that is to say, they are willing to split profit assuming with or without respect to the predictation. With these big financial institutions and oil rich Nigeria doing business...risk is at minimum and I hope it will open Nigeria to these America.

If you ask me, these moves are healthy for Nigerian banks since they make the CBN, if we had a federal reserve system separate from central bank...anyone can deal directly with the Reserve. Considering 125 to 1 conversion rate...and that a huge $250m is involved in a mere $500m.

Given a 10% depreciation..., an accumulated adjustment of slightly higher percentage and an offering $500m will yield an estimated income of the amount offered. The profit curve is somewhere in neighbourhood of 0.25 of 1% and up, which can only 5%-10% percent profit and less for Nigerian banks. Remember, these are receipts...which means money transferred in not coming back. You can deffer...meaning that CBN ought to lend this money as they did sometime this year...by buying 670 million dollars the Forex.

As for these banks, they should decline the offer. Unless they have money to throw away...because money added value will not filter down to the general public. Expect interest rate rise if the deal goes down

[balaliyu]

Great discussion and nalysis.

What we are witnessing with the banks is simply the impact of Globalisation. They source funds at relatively cheaper rates abroad, and use them to finance the commercial transactions in Nigeria at double digit rates. Its been paying off thus far, but I doubt that it is sustainable. At the rate some of them have sourced for funds, expect ROE to dip very soon.....take Intercontinental for example...what level of real sector financing justifies the level of capital it has sourced...and it now has about to 20billion shares in issue..even with its 20b profit, what is the real ROE, and what is the outlook on this...?

In any case..I thin it is safe to expect a correction down the line and banks who have realised this have started plugging into to full time retail banking and Mortage financing....Until the real economy can support the rate of return by the financial instituitions, what we may coninue to see is simply a facade that may soon collapse.

Invest with caution, pay attention to fundamentals....we'd had such a great party in the market the last couple of years....but for how long..?

Bala

[omoregie]

I quite agree with Balaliyu, 'Invest with caution, pay attention to fundamentals....' Though GTBank is a great Institution, one still has to look at the fundamentals before jumping at this offer.

For those of us outside Nigeria and also considering that the offer is open just for two week, does anyone has a link to downloading the offer's prospectus?

[Tunde]

I checked the GTB Bank website today for information on the Offer. There was none. Given they inend to conclude within 2 weeks, the lack of detailed prospectus is strange. I am also surprised that GTB share are not susupended. Trading continued today on NSE!

[Gengen]

I believe seeking international investment in Nigerian banks is good for the Nigeria, as a whole. GTBank is a great institution, as mentioned by Prof. As per investing in this, it depends on your intention. If it is for a long term, please go ahead without any hesitation. However, for a short term (less than two years), I do not advise it.

What we are seeing is the effect of "Soludoism" in our banks, realistic profit margins, Nigerian/International shareholders' expectation and globalisation.

I will take this one by one.

A. Soludoism
- Has made Nigerian banks realise that bigger is better
- 'Soludo carrot effect' - Achieve $1 billion sharholders fund, get $500 million nigerian foreign reserve to manage
- Competition amongst Bank's prestige - First Bank wants to continue to be the first, (Tier 1 banks) Zenith, Intercontinental, UBA, UBN, Oceanic, GT Bank, etc all wants to be amongst the first 3 banks
- Tier 2/3 banks banks (IBTC, FCMB, Diamond, Access etc) are all 'threatening' the Tier 1 banks by there rapid expansion and overshadowing them.........."UBN has to wake up"

B. How to quickly achieve $1 billion Sharholders fund
- Raise money internally (within Nigerians) and meet our high expectation (profit margin, above 60%)
- Raise money externally and meet international expectation (profit margin of 60% considered as excellent performance)

C. Effect of 'Getting' bigger
As you get bigger, you have more funds to face full banking roles e.g lending out money. The rule of Supply and Demand then sets in - the more the lenders (banks), with little increase in borrowers, the lower the lending rate will become. Also the profit margin per unit will reduce.
However, this lower lending rate and lower profit margin (by Nigerian Shareholder's standard), is the ACCEPTABLE norm INTERNATIONALLY.

D. What the Banks have done or are doing
1. With the profit margin still high and acceptable to Nigerian investors, raise money internally.

2. With international investors seeing this excellent performance (by their standard), and also observing the stability of the Naira, they are all investing at rapid rates. Also, they now have a trustworthy channel, (not scared of 419) who knows the grounds, through which they make investment in Nigeria. A good point to note is that NONE have indicated setting up their own banks in Nigeria yet or are storngly pursuing setting up one.

3. With Nigerian banks knowing that with expansion, competition, etc., the profit margin per unit will therefore reduce and appeal from Nigerian investors reducing, they have realised that they have to go raise money internationally where their performance is still considered very good.

4. After all the above has happened and our banking system will move towards international standards, then we can now have the full benefits of our Banking reforms, i.e.,
- Lower lending rates ~ 6 - 10%
- Lower Mortgate rates ~ 5 - 8%
- Financing of projects with lower returns
- Etc.

Note: My loose term, Profit Margin = Annual Profit Increase

[c kenneths]

Gengen, am getting educated here, good write up.

[oseitutu]

Originally Posted by Gengen

As you get bigger, you have more funds to face full banking roles e.g lending out money. The rule of Supply and Demand then sets in - the more the lenders (banks), with little increase in borrowers, the lower the lending rate will become. Also the profit margin per unit will reduce.
However, this lower lending rate and lower profit margin (by Nigerian Shareholder's standard), is the ACCEPTABLE norm INTERNATIONALLY.

D. What the Banks have done or are doing
1. With the profit margin still high and acceptable to Nigerian investors, raise money internally.

2. With international investors seeing this excellent performance (by their standard), and also observing the stability of the Naira, they are all investing at rapid rates. Also, they now have a trustworthy channel, (not scared of 419) who knows the grounds, through which they make investment in Nigeria. A good point to note is that NONE have indicated setting up their own banks in Nigeria yet or are storngly pursuing setting up one.

3. With Nigerian banks knowing that with expansion, competition, etc., the profit margin per unit will therefore reduce and appeal from Nigerian investors reducing, they have realised that they have to go raise money internationally where their performance is still considered very good.

4. After all the above has happened and our banking system will move towards in international standards, then we can now have the full benefits of our Banking reforms, i.e.,
- Lower lending rates ~ 6 - 10%
- Lower Mortgate rates ~ 5 - 8%
- Financing of projects with lower returns
- Etc.

You have made a lot of valid points and I agree with you. I have even suggested some of these points raised elsewhere on this forum. We seem to look at these developments from two opposite angles: our banks are not letting go of the mentality of high interest or no loan! Thus they are working themselves into a corner. The so-called core banking activities are really not increasing as it logically should. In the West, more than 50% of the population owe in one way or the other. In fact it is the rule rather than the exception. Nigerian Banks can only reach the potential which the foreign investor sees by getting people to owe (after borrowing). If the interest rates are too high, people will not borrow. If people do not borrow, they will fall quite short of expectations. Then there will be dissappointment of investors as costs increase with expansion and income does not increase, or increases marginally due to unnecessary rigidity and lack of dynamism on the part of these banks. The effect will be a recoil by investors: first locally then subsequently the international big boys who will see the value of their investment dwindling. That is the market crash I am afraid of. May it not come from our banks. may they be more brave and get the ball off the ground. Something as simple as loan for equity trading and their conditions are comical. Another bank sent me an email saying they have a product to lend money for stocks trading but that during the tenure of the loan, all bonuses and dividends must come to them. I rang the Bank Manager that sent me the letter to enquire which planet the lady dropped from, but she was in a meeting and has not come out for the past 5 days!
Nigerian Banks are trying to walk on thin ice and some speculators (and investors alike) want to climb their backs while they walk. I pray that those climbing the backs have the skills to swim sub-zero waters!

[Gengen]

Below is a tip about the GTBank offer. It is open to various interpretations

".... Interestingly, subscribers will not be subjected to the 3-4 months plus that it takes to receive the shares but will be able to trade their shares almost immediately as investors funds will not be subjected to CBN verification...."

[Stockmarket_Voyeur]

Hi Tunde,

An email I received from Proshare reads:

The GDR price range will be announced on Wednesday 11 July, 2007 and pricing is expected to be announced on Friday 20 July, 2007.

You could always contact Afrinvest directly as they are supposedly handling the Nigerian end of the offer.