(Ecofin Agency) - Ecobank Transnational Incorporated (ETI), a leading pan-African bank, has announced plans to raise up to $600 million through a new senior unsecured bond offering. This decision comes after ETI’s shareholders approved the fundraising during a meeting earlier this year, aimed at strengthening the bank’s financial position, particularly its Nigerian subsidiary. Major financial institutions including Absa, Africa Finance Corporation (AFC), Afreximbank, Mashreq, and Standard Chartered Bank have been engaged to market the offer.

Ecobank’s upcoming bond issue will be a five-year, senior unsecured debt offering denominated in U.S. dollars. Senior unsecured bonds are financial instruments that do not have specific assets backing them but have priority in repayment over other forms of debt if the issuer faces financial trouble. This means investors in these bonds will be repaid before subordinated debt holders but after secured creditors in case of liquidation.

The bank, which operates in 35 African countries, is moving forward with this bond issue to enhance its financial structure. This comes at a critical time for its Nigerian branch, which currently holds 13% of the group’s assets and generates 6% of its net income but is facing significant liquidity challenges.

Ecobank Nigeria has encountered difficulties in recent months due to its non-compliance with the required capital adequacy ratio. According to Moody’s, the Nigerian subsidiary has asked its creditors for a six-month extension on a $300 million bond maturing in 2026. The extension would give the bank time to improve its capital adequacy ratio to above 10%, the minimum required to maintain credibility.

The Nigerian branch needs that time to raise $200 million to strengthen its core capital. If the extension is not granted, it risks facing higher interest rates or early repayment demands, which could worsen its financial situation. This has led ETI to explore the possibility of providing liquidity or injecting capital if necessary. However, Moody’s has warned that such intervention could put additional pressure on ETI’s liquidity at a time when global funding conditions are tight.

Moody’s highlighted that any liquidity extension or capital injection would represent a significant liquidity need for ETI, which is just starting to recover from its own challenges. As of June 30, 2024, the bank’s total capital ratio was 14.1%, exceeding the minimum requirements typically set at 8% (or higher for systemic or regional banks).

In this context, Ecobank is seeking to tap into international markets. Rated B- by S&P and Fitch, and B3 by Moody’s, ETI has appointed a group of international banks including Absa, AFC, Afreximbank, Mashreq, and Standard Chartered Bank to lead the bond sale. Renaissance Capital Africa is serving as a financial advisor for the transaction.

On September 30, the bank began its roadshow, targeting institutional investors to pitch this new offering. However, the operation is subject to strict limitations. The issued bonds will not be registered with financial regulators in Nigeria, Ghana, or WAEMU countries, where ETI is listed. As a result, they cannot be offered or sold in these markets except in private transactions limited to investors who meet local regulatory requirements. The bonds are exclusively for qualified institutional investors, in compliance with U.S. Rule 144A and Regulation S. Rule 144A allows private sales of securities in the U.S. market to qualified institutional buyers, while Regulation S governs offerings made outside the U.S. to non-American investors.

These regulations allow Ecobank to avoid traditional registration requirements with the U.S. Securities and Exchange Commission (SEC), while targeting a well-defined and regulated investor base, including those in the United Kingdom.

The new fundraising announcement follows a strong year for Ecobank, with revenues surpassing $2 billion. During an extraordinary general meeting in June, former chairman Alain Nkontchou mentioned the possibility of raising up to $600 million through new Eurobonds. This proposal was approved by shareholders. The goal was to bolster the bank’s liquidity after repaying a previous $500 million bond issued in 2019, which was partially refinanced by a $250 million bridge loan arranged by Afreximbank and AFC.

This new bond issuance could help boost Ecobank’s total capital ratio, providing a necessary buffer to absorb potential losses on risky assets and ensuring the stability of its banking operations. The bank is also working to replenish its reserves, as evidenced by the decision not to pay dividends this year, despite a profit of $488.4 million in 2023.