Tier1 Bank, Zenith Bank, is set to redeem its $500m Eurobond ahead of its maturity date in April 2022 on the back of a strong dollar liquidity in its buffers. The 5-year Eurobond was issued on 30th May 2017.
In a note to investors seen by BusinessDay signed by the Company Secretary, Zenith Bank said it has : “Launched an invitation to holders of the $500m 7.375% Notes issued by the company…to tender Notes for purchase by the Company for the Purchase Price plus the Accrued Interest Amount.”
Checks by BusinessDay show that naira equivalent of the bank’s dollar-denominated assets stood at N1.85trn ($5.14bn) in the first half of 2019, accounting for 32.63 percent of its total assets in the period.
Aderonke Akinsola, banking analyst, said banks raise Eurobond for some reasons among which are to boost their dollar liquidity, meet their dollar related transactions for clients that need funding in dollars for opportunities that they want to take advantage.
According to Akinsola, now the bank is at a point that they are very liquid in dollar terms and the management feels that instead of carrying on books, they want to call back the Euro bond they have issued, since they are not deploying the dollar liquidity to areas that could generate income for them.
“Recall of the Eurobond could be that the bank is not seeing dollar related lending opportunities, this takes it off from their cost of funding and interest expense,” she added.
This would obviously also allow them to grow their earnings more as opposed to just having the cash lying idle and not deployed to income-generating assets when they could as well deploy it to settle their dollar liabilities.
She further noted that this cannot be attributed to the 60percent Loan-Deposit Ratio policy of the apex bank.
“This is a debt liability it is not a deposit liability expect the CBN comes to say they will be looking at loan to Total funding but since the policy is loan to deposit ratio, it has no effect,” she said.
In 2018, Fitch Ratings revised its outlook on Zenith Bank’s (Zenith) Long-Term Issuer Default Rating (IDR) to Stable from Negative and affirmed the rating at ‘B+. Also, S&P Global Ratings affirmed its ‘B’ long-term and ‘B’ short-term issuer credit ratings on the bank.
In its recently released half-year result for the period ended 30th June 2019, Zenith bank’s non-interest income surged 23.9percent year-on-year to N109.73bn, Profit after tax grew 8.9percent year-on-year buoyed by fees on electronic products, which grew by 1.7times year-on-year and contributed 43percent to fee and commission income as compared to 22percent in half-year 2018.
In the period, customer deposits increased 3.2percent to N3.81tn, driven by the 27.4percent and 4.6percent growth in domiciliary and savings deposits respectively.
The Board of Directors of the bank also announced the payment of an interim dividend of 30 kobo per share, payable on September 4 to shareholders whose names appear in the register of members as at the close of business on August 29.
OLUFIKAYO OWOEYE
