April - June 2017 •
The Lion King
• 11
BUSINESS
UBA’S
DEBUT EUROBOND
Y
ou must all have read
about the big news
recently as we issued our
first $500 million Eurobond.
The issue was over subscribed
by over 240%. For some of you
who don’t fully understand the
import of this event, Abiola
Rasaq breaks it down nicely.
What is a Eurobond?
A Eurobond is a debt note, used in
raising long term funds outside of the
home country of the issuer and in
foreign currency, usually the United
States Dollars. Eurobond can be issued
by corporates as well as Sovereign
nations or through public commercial
enterprises. Being a global offering at
the international capital market, the
funds raised through Eurobond can
serve as capital to a corporate issuer,
when the terms of the Offering meets
the definition of capital in the issuer's
home country/industry. For instance,
when a bank wants Eurobond to
qualify as a part of its capital (in
which case such will be regarded as
a Tier-II capital), the Eurobond will be
subordinated, with a minimum tenor of
more than 5 years. By subordination, it
means that in the event that the issuing
entity is being liquidated, the investors
in the Eurobond will only be able
to make claim on the issuing entity
after other creditors have been settled
and only before the shareholders (i.e
equity investors, who technically only
have residual claim on a company, in
the event of liquidation).
To give a few examples of recent
Eurobond transactions, The Nigerian
government recently issued a total
of USD1.5billion, through two different
Eurobond offerings, with tenor of 15
years. We at UBA also recently issued
five - year debt Notes of USD500
million, through Eurobond listed on the
Irish Stock Exchange.
How does it work?
Issuing a Eurobond involves the
appointment of a Lead Manager
or Joint Lead Managers (JLMs), who
manages the process of issuance,
together with international and
local legal counsels who conduct
relevant due diligence on the issuer
to ascertain its capacity for such
issuance and ability to service the
debt as at when due. These lawyers
and investment bankers also ensure
that all relevant disclosures are made
and such representations reflect the
fair assessment of the issuer. Given
that the appointed JLMs are typically
international banks, the issuer often
has the flexibility of choosing where to
market the instrument, to the extent of
meeting the extant regulations of such
jurisdiction/market.
Since Eurobond is a fixed income
investment that requires that investors
take the credit risk of the issuer, the
marketing and subscription to the
Notes are by regulation restricted to
Qualified Institutional Buyers (QIBs),
which means that retail individual
investors are not permitted to invest
directly in Eurobond, except such
investment is done through the QIBs.
Following the primary offering of the
Eurobond, it traditionally gets listed
on Exchanges, such as the London
Stock Exchange and the Irish Stock
Exchange, to enable secondary
market trading in the Notes.
Why and how did we just raise
$500m?
The decision of UBA to raise
USD500million through Eurobond
at this time is to complement the
stable deposit funding of the Group
by deepening our funding base. This
successful offering, which has a tenor of
five years, will strengthen our capacity
to grow the balance sheet and
support the Foreign currency needs
of our customers, as we continue to
finance profitable impactful projects
across our chosen markets in Africa.
What is the value in this for
the bank?
The Eurobond helps to broaden
our funding. It further tenors out the
maturity profile of our funding base,
and will enhance our balance sheet
growth, strengthening our capacity
to support our customers by financing
profitable and impactful projects,
thereby enhancing the overall
profitability and financial capacity of
the Group. It should enhance our
market share growth and overall
financial performance, going forward.
BY ABIOLA RASAQ
