Diamond Bank Shareholder Loses N21b

By Dipo Olowookere

There are strong indications that one of the major shareholders in Diamond Bank Plc, a financial institution on the Nigerian Stock Exchange (NSE), may eventually lose up to N20.6 billion or $67.2 million of its investment in the local lender.

Diamond Bank has been struggling lately and there are fears that it could go the way of defunct Skye Bank Plc, which had its operating licence revoked by the Central Bank of Nigeria (CBN) in September 2018 for low capital base.

Four years ago, an American firm believed to be the world’s largest private equity group, Carlyle Group, invested heavily in Diamond Bank.

At the time, Diamond Bank organized an operation to raise N50 billion (about $303 million at the exchange rate of N165 for $1 at that time), with Carlyle then acquiring about 4.16 billion shares at N5.80k each (at about N24.1 billion or $146.2 million), becoming the leading individual shareholder in the bank with 17.7 percent of the shares.

But today, with exchange rate at about N306 at the interbank segment of the foreign exchange market, Diamond Bank is only worth 86 kobo per share.

Business Post reports that Carlyle Group has already lost N4.94k per share of its investment in Diamond Bank, resulting in a total of N20.6 billion or $67.2 million.

At the present market value, Carlyle’s participation in Diamond Bank is worth about $11.7 million because the share’s prices never exceeded purchase price and yield per share has been negative.

Instead of the awaited expansion, Diamond Bank sold some of its operations in the West African region, Nigeria excluded, and, its profit kept falling. From N1.43 net profit per share in 2014, it fell to N0.36 due notably to a significant drop in trading revenues and there are fears already that the 2018 financial year could follow the same trend.

Indeed, even though trading revenues are important once again, they are negatively affected by a fall in the net interest margin at the end of the first nine months of 2018.

“Carlyle is very pleased to join the Diamond Bank Group as an investor. Diamond Bank is one of the most recognised retail banks in Nigeria, with a strong corporate culture, best-in-class management team, advanced technology, large retail franchise, and innovative product and service offerings,” Managing Director and Head of West Africa for the Carlyle Sub-Saharan Africa Fund which was the investment vehicle at the time, Geneviève Sangudi, had said four years ago when the firm keyed into the Diamond Bank dream.

But according to Ecofin Agency, things never went as planned for Carlyle Group because of the fall in oil prices and Diamond Bank was already suffering from an important volume of bad debts, which continued to lose value.

A solution: quickly find foreign investors to support the group

In such conditions, Diamond Bank cannot rely on its shareholders and is thus obliged to quickly find a solution to settle an important part of its international bonds that will mature in May 2019 and this is a great challenge since its liquid assets in foreign currency represents 25 percent of the $200 million Eurobond to be settled.

Recently, Moody’s downgraded Diamond Bank’s issuer rating from caa1 to caa3 due to two main reasons; first, there is a great volume of bad debts that the bank is not really able to solve yet; from 42 percent in December 2017, it lost two percent points at the end of the third quarter of 2018 to reach 40 percent.

Secondly, important members of its board resigned, signalling internal management problems. Moody’s thinks that this could impact the effort required to solve the bank’s bad debt problems (of which only 20 percent are sufficiently covered).

On November 23, 2018, Diamond Bank’s share gained 7.6 percent points after a week of value loss. It started the week of November 26, 2018, with a loss of 1.26 percent in value.

At the moment, Diamond Bank has a total of 23.1 million shares outstanding and an EPS of -70 kobo.