Global rating agency, Fitch Ratings has cautioned investors over the United Bank of Africa, UBA Plc new $1.5billion global medium-term note programme, GMTN. The US based firm said in its recent publication that it has yet to assign any rating to the issue, until the bank furnishes it with enough information.
The Kennedy Uzoka-led bank had recently issued both senior unsecured and subordinated debt notes worth $1.5 billion with a five-year maturity period, which Fitch said are “in line with UBA’s Long- and Short-Term Issuer Default Ratings (IDR) of ‘B’ and ‘B’, respectively, and apply only to senior unsecured notes issued under the programme”.
The lender, a few days ago, successfully raised $300 million on the London Stock Exchange, as part of the overall $1.5 billion issue, described by its chief executive as a boost of global investors confidence in the bank.
“This successful dollar-denominated offering further illustrates global investor confidence in the strong fundamentals of our Group. It is a testament to our customer first strategy, pan-African growth story, supported by prudent risk management and benchmark asset quality ratios,” Uzoka said.
Accordingly, Fitch said “UBA plans to raise between $350 million and $500 million of fixed-rate five-year bonds. Based on Fitch’s assessment on expected recoveries in a liquidation scenario, an expected Recovery Ratings (RR) of ‘RR4 (EXP)’ is also assigned to the notes, implying that average recovery prospect.”
But the agency said it has decided not to assign any ratings on the subordinated debt until the commercial bank furnishes it with further details concerning the bond.
According to Fitch “in the case of subordinated debt issuance, the issue’s features will require further evaluation for the purpose of assigning a rating.
“There is no assurance that all notes issued under the programme will be rated or that all rated notes will be aligned with the programme rating.”
What is subordinated debt? According to investopedia a subordinated loan also known as junior is an unsecured loan or bond that ranks below other, more senior loans or securities with respect to claims on assets or earnings.
“Fitch’s advisory is a subtle advice to investors or creditors to make informed decisions on whether to buy the bonds or not. In any case investing in bonds or other bank instruments involves taking a risk,” an investment expert said on Monday.
Banks issue subordinated debt for various reasons, including shoring up capital, funding investments in technology, acquisitions or other opportunities, and replacing higher-cost capital. Sometimes, it as avenue for banks to raise inexpensive
Recall that the bank, had last week, issued a notice to the Nigerian Exchange, NGX of its readiness to redeem its outstanding $500 million bonds, issued four years ago for a fresh one.
In the notice titled “United Bank for Africa Plc Senior Unsecured Note Issuance with a 5-Year Maturity” the bank said it has appointed Citigroup Global Markets Limited, Mashreqbank psc, Renaissance Securities (Cyprus) Limited, and Standard Chartered Bank as dealer managers for the Tender Offer.
“United Bank for Africa Plc hereby notifies the Nigerian Exchange Limited that it has mandated Citigroup Global Markets Limited, Mashreqbank psc, Renaissance Securities (Cyprus) Limited, Standard Chartered Bank, and United Capital Plc as Joint Lead Managers to arrange a global investor call in addition to a series of fixed income investor meetings (each of which will not constitute a public offer in Nigeria) commencing on November 8, 2021.
“A 5-year fixed rate benchmark USD denominated Regulation S/144A Senior Unsecured offering under UBA’s Global Medium Term Note Programme may follow, subject to market conditions.
“In connection with the new bond offering, UBA proposes to redeem its outstanding US$500mn 7.750% 2022 bonds and will announce today a cash tender offer for any and all of the outstanding bonds,” the commercial bank said in the notice.
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