UBA to raise $500m through debt notes

United Bank for Africa (UBA) Plc is set to raise $500 million senior unsecured medium term debt notes aimed at expanding its general banking purpose across Africa.

This is even as a rating agency Fitch on Tuesday assigned an expected rating of ‘B (EXP)’ to the African lender proposed senior unsecured medium-term notes.

In a statement signed by the Group Company Secretary, UBA, Mr. Bili Odum, the Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) had given approvals to the $500 million debt notes transaction.

According to his statement, UBA intends to issue the Notes directly but will retain the flexibility to substitute the issuer with an offshore special purpose vehicle, where market conditions require and allow for such, prior maturity of the Notes.

The statement said, the raised $500 million senior unsecured medium term debt notes will be listed on the Irish Stock Exchange, with the expectation that the Notes will be traded on its regulated market.

The statement by Odum said, “UBA will pay the net proceeds from the Notes issuance into its foreign currency domiciliary account, which may be retained by UBA in foreign currency or converted into Naira, depending on UBA’s requirement from time to time.

“A Certificate of Capital Importation (CCI) will not be obtained in respect of the proceeds of the Notes that are not converted into Naira because a CCI is only issued in respect of capital imported into Nigeria and converted into Naira.

“UBA intends to make principal repayment and interest payments on the Notes from its foreign currency reserves, since it will not be able to obtain access to the Nigerian foreign exchange market for the purpose of making such payments.

“Notwithstanding the forgoing, UBA will obtain the approval of the CBN to access the official foreign currency reserves if for any reason UBA does not have sufficient foreign currency reserves to meet the principal and interest payments due on the Notes.”

Meanwhile, based on Fitch’s assessment on expected recoveries in a liquidation scenario, an expected Recovery Rating (RR) of ‘RR4 (EXP)’ is also assigned to the notes, implying average recovery prospects.

The notes will constitute senior unsecured obligations of UBA and will be used for general corporate purposes. The assignment of the final rating is contingent on the receipt of final documents conforming to the information received to date.

The expected rating is in line with UBA’s Long-Term Foreign-Currency Issuer Default Rating (IDR) of ‘B’. In Fitch’s view, the likelihood of default on these notes reflects the likelihood of default of the bank.

According to Fitch’s criteria, a bank’s IDR usually expresses Fitch’s opinion on the risk of default on senior obligations to third-party, non-government creditors as in Fitch’s view these are typically the obligations whose non-performance would best reflect the uncured failure of the entity.

Where a bank has a Long-Term IDR of ‘B+’ or below, Fitch usually assigns an RR to the entity’s issues. RRs provide greater transparency on the recoveries component of Fitch’s assessment of the credit risk of low-rated issuer’s securities.