(Ecofin Agency) - Carlyle Group, the American firm presented as the world’s largest private equity group, could potentially lose $136.1 million on the investment realized in November 2014 in Nigerian group Diamond Bank.  

At the time, Diamond Bank organized an operation to raise NGN50 billion ($305 million at the exchange rate of NGN165 for $1 at that time). Carlyle then acquired about 4.16 billion shares at NGN5.8 each, thus becoming the leading individual shareholder in the bank with 17.7% of the shares.

"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", commented Geneviève Sangudi, Managing Director and Head of West Africa for the Carlyle Sub-Saharan Africa Fund which was the investment vehicle at the time.

However, things did not go as planned. Because of the fall in oil prices, Diamond Bank which was already suffering from an important volume of bad debts continued to lose value. At the present market value, Carlyle’s participation in Diamond Bank is worth $10.9 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 NGN 1.43 net profit per share in 2014, it fell to NGN0.36 due notably to a significant drop in trading revenues.  

2018 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.

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. A great challenge since its liquid assets in foreign currency represents 25% of the $200 million Eurobond to be settled.

Moody’s also 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% in December 2017, it lost two percent points at the end of the third quarter of 2018 to reach 40%. Secondly, important members of its board resigned, signaling 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% 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% in value.

Idriss Linge