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Saturday, October 1, 2022

How Otedola Used Structured Finance to Gain Control of First Bank

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Femi Otedola the largest shareholder in FBN Holdings the parent company of First bank of Nigeria used a sophisticated form of financing known as structured finance to fund his acquisition of shares in the bank that ultimately led to his controlling stake.

The deal to increase Otedola’s stake in First Bank was done in cash and borrowed shares, according to sources familiar with the matter who spoke to MoneyCentral.

Last week news broke that Otedola sold 717.93 million shares or 2.02 percent of his stake in First Bank for approximately N7.96 billion. That was just a concluding leg of the financing arrangement, sources tell MoneyCentral.

“Interestingly, he may have partly financed the acquisition through some structured finance arrangement and selling off the securities may perhaps help to minimise the cost of such financing structure, especially as he is not likely to sell down below 5% to ensure he maintains his influence as well as retain his shareholding status as the single largest equity holder in Firstbank,” Dr. Lizzie Kings-Wali, Chief Executive Officer of Blackstone Capital Limited said.

Otedola sold the First Bank shares at an average price of N11.10 per share according to a filing on the Nigeria Exchange Group (NGX).

Otedola’s direct and indirect holdings of FBNH, the parent company of First Bank, amounted to 7.57 percent or 2.717 billion shares as at March 2022. With the new sales Otedola’s holdings in FBNH have dropped to 5.56 percent.

Structured finance is a financial instrument available to companies with complex financing needs, which cannot be ordinarily solved with conventional financing.

Sources tell MoneyCentral It was important for the financing plan to first clear the investment objective of Mr. Femi Otedola as regards First Bank.

“He had a plan of becoming not just a significant shareholder, rather he wanted to be the single largest shareholder, with the prominence and statutory capacity to have influence, especially from a governance perspective,” a second source told MoneyCentral.

How he funded the transaction and subsequent actions was another issue altogether.

Otedola has now achieved his primal objective, of control and subsequently nominated Non-Executive Directors, especially Mr. Julius Omodayo-Owotuga, who is perceived as his staunch loyal staff and former Executive Director at Mr Otedola’a erstwhile empire, Forte Oil.

Sources say now that Otedola technically has influence in First Bank, which some describe as having corporate control, and the other contenders such as Mr. Hassan Odukale really no longer having influence, he may not necessarily have to keep as much equity interest. Hence the sell down of shares announced in a filing to the Nigerian Exchange, last week.

“He only needs to keep what is enough for him to maintain his influence,” the source added.

Some of the First Bank shares Otedola bought may have been borrowed in a sort of repurchase or Repo arrangement, and perhaps the “purported” partial divestment is just an exercise of the concluding leg of the financing transaction that is used in making the acquisition, a third source disclosed.

“It’s an interesting take-over game, and with the share price falling below its acquisition price and further bearish outlook on the capital market ahead of elections. It’s only reasonable for him to minimise his cost, especially as such partial divestment does not undermine his primal objective of being an influential holder,” the source said.

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