Ecobank wants to spoil its shareholders 

By Aurélie M'Bida

Posted on Wednesday, 15 September 2021 14:11
Ecobank in Côte d'Ivoire (AP Photo/Emanuel Ekra)

Entry into the debt market, an injection of funds from investment firm Arise B.V... Ecobank, the pan-African bank, is looking to strengthen its balance sheet to boost its dividends. We have a closer look at the strategy of the group led by Ade Ayeyemi. 

Ecobank has just unveiled its arrangement with investment firm Arise B.V. (a group shareholder since 2019), under which the latter will make an additional investment of $75m directly into the top end of the balance sheet (additional Tier 1 equity).

Shareholders will probably have to wait until next year to see any dividends, but the Ecobank Group is working hard to reassure them.

After its last bet on the London Stock Exchange in June – when Ecobank Transnational Incorporated (ETI), the holding company of the eponymous banking group, issued $350m worth of sustainable bonds –  the pan-African institution is resorting to new tricks.

According to Ecobank, this sum is intended to “strengthen the equity of profitable subsidiaries in two of the group’s key regions: French- and English-speaking West Africa”. In addition, it will increase loan volume for the Lomé-based bank.

This transaction, carried out bilaterally with one of its major shareholders (14% of capital), reflects – above all – the efforts of Ayeyemi’s group to strengthen its balance sheet, and earn back its stripes with the rating agencies.

Double leverage

Indeed, since May 2020, Fitch Ratings has downgraded the group’s long-term financial rating, in the 35 countries where it operates, to a ‘B-‘, notably sanctioning the continuous increase in ETI’s double leverage. This ratio, which is particularly scrutinised by rating agencies and shareholders, is defined according to investments in subsidiaries, compared to shareholders’ equity in the holding company.

The investment from Arise B.V. […] illustrates the support, commitment and capabilities of Ecobank’s international shareholder base.”

Since 2018, it has been around 150%, above the 120% threshold. By the end of 2020, the ratio was 153% (compared to 155% in the same period of 2019), prompting Fitch Ratings to maintain the B- rating last May.

The entry into the debt market and the investment from Arise B.V. will not likely be enough to strengthen the balance sheet of the bank holding company which admits to “continuing to explore ways to lower its double leverage ratio”.

This statement is in line with the group’s roadmap, mentioned in the 2020 annual report. “No dividend has been paid since 2016 and this will again be the case for the 2020 financial year,” says Alain Nkontchou, the bank’s chairman, a decision presented as “difficult for the board of directors”.

Nkontchou says the decision reflects, in addition to a difficult operating environment due to the pandemic, Ecobank Group’s famous “double leverage” ratio. Distributing dividends, he says, “could increase it even further.”

The confident, patient shareholder

Ultimately, if via this new operation the banking group wants to send a positive signal to its shareholders, the fact that one of their peers is injecting additional funds does not seem insignificant.

The holding company hit that point over the head in a statement. “The investment from Arise B.V., a leading venture capital investor in sub-Saharan African financial institutions and one of ETI’s largest current institutional shareholders, illustrates the support, commitment and capabilities of Ecobank’s international shareholder base.”

Arise is an investment company with headquarters in Cape Town and Amsterdam established in 2016, and backed by a trio of investors: the Norwegian fund Nordfund, FMO (the Netherlands Development Bank), and the Dutch finance company Rabobank. With an investment portfolio of nearly $700m, Arise is now partnered with nine banking institutions active on the African continent.

Speaking to us in August 2019, when he took a stake in ETI for an undisclosed amount, Arise BV’s managing director Deepak Malik explained the firm’s credo: collaborating with sub-Saharan African financial services providers to stimulate economic growth by strengthening the local banking sector. Duly noted, two years later.

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