AMCON wants to recover its money and close shop
I want to use this opportunity to appeal to our obligors. They should come and talk to us. We intend to publish a list of who they are. We intend to go after them.
In this exclusive interview by Financial Nigeria editors, Mr. Ahmed Kuru, Managing Director, Asset Management Corporation of Nigeria (AMCON), discusses the successes and recovery efforts of AMCON as well as the outlook of the 'bad bank' over the next three years.
Financial Nigeria (FN): The Asset Management Corporation of Nigeria was set up for the specific need of helping to clean up the balance sheets of Nigerian banks in the wake of the 2008 – 2009 financial crisis. This assignment should have been over by now, going by the original plan. What is your view on the sunset for AMCON?
Ahmed Kuru (AK): At the conceptualisation stage, it was envisaged that within a period of 10 years, AMCON should be able to wind down. This was based on certain assumptions. Firstly, the banking industry was projected to grow at a rate of 20%. Secondly, inflation was expected to be controlled, presupposing that the value of the underlying assets will go up. Thirdly, it was assumed that the economy would pick up quickly.
Unfortunately, most of those assumptions didn't play out. Several years after AMCON was set up, the Nigerian economy was still facing some challenges. As a result, the banking industry didn't grow as it was envisaged. The highly leveraged businesses also didn't improve as expected.
If you recall, we bought non-performing loans (NPLs) with book value then of about N3.3 trillion. We paid N1.7 trillion for the bad loans and also provided financial accommodation to some of the banks worth about N2.2 trillion. The NPLs were asset-backed. The collateral coverage for the N1.7 trillion was in excess of N3.5 trillion. Therefore, it was assumed that the N2.2 trillion will be recovered from the excess collateral coverage. But unfortunately, the reverse happened.
The assets that were worth N3.3 trillion depreciated so badly because of the economic downturn. In fact, the assets depreciated by up to 50%. As the economy was struggling, the banking industry was also struggling. All the assumptions that AMCON would be able to exit quite a number of those loans has not happened. This is why we are not able to achieve what we had projected at the time of the conceptualisation of Asset Management Corporation of Nigeria.
FN: AMCON itself may have been stressed by the elongation of its life, given that the financial system and the political institutions for managing the economy have been facing new challenges with the downturn in the economy. Is AMCON getting the help it needs to be able to carry out its mandates and operate without encumbrance?
AK: Yes, we are. On the executive arm, which we are part of, we have very strong support from those agencies that play a role in the discharge of our duties such as the Office of the Attorney General, Economic and Financial Crime Commission, Central Bank of Nigeria, Corporate Affairs Commission, Debt Management Office, and the Federal Ministry of Finance. We work very closely with them and the support they have given us is tremendous. We couldn't have reached this level without their support.
The National Assembly also has been of tremendous support and we relate with the lawmakers regularly. They are willing and ready to fine-tune the enabling law so that we can be more effective. Also, whatever we do at AMCON is also dependent on the support of the judiciary. We are getting commendable support from the three arms of government.
The only challenge is with the obligors who are unwilling to settle their debts. They are getting smarter by the day and getting desperate, although some of them are unable to settle their debts because of the dire economic situation. Those that are unable because of the tight economic situation are nevertheless unwilling to relinquish the underlying collateral. They have leveraged the courts to lock us up in the judicial process for many years. Some are even ready to stay in courts for 20 years.
FN: What are the recent facts and figures about the recovery efforts of AMCON and any other successes the corporation has recently achieved?
AK: So far, we have recovered almost N750 billion. This year, we have been able to recover around N70 billion. We have substantial assets in our possession and we are praying that their value appreciates. But if they don't, we may have to take further haircut, although we want to avoid the latter scenario.
We have been able to pass the message to our obligors, telling them that we are open and ready to talk with them. Some of them have responded. But I can tell you that it is becoming more and more difficult by the day, especially as quite a number of the hardcore obligors have tied us up in courts and denied us access to the assets.
Given the current economic and liquidity situation, I think we are making progress in terms of recovery. However, we need to finetune the legal framework so that we can respond to the new approach being taken by some of the obligors.
FN: AMCON was very important and quite successful as a resolution vehicle for the banking crisis. But in the aviation industry, where AMCON has also massively intervened, systemic stress or distress still defines the industry. Why is AMCON less successful with its aviation sector intervention?
AK: AMON is not a regulator. It is not a special purpose vehicle set up to take care of any particular industry. AMCON only gets involved in any particular industry based on the level of indebtedness to the banking sector and because of the loans that we purchased from the banks.
AMCON is not structured to manage any business. We are structured to recover money. We are debt collectors. However, the concept is that we should be able to help some of those business whose bad loans were purchased and we have done so. AMCON has invested in excess of N300 billion in other businesses. Where we realise that a little intervention can improve the state of the enterprise, we go in and provide financial support. But we don't have, neither do we claim to have, the internal expertise to even manage sale of pure water business.
We entered the aviation industry as a result of the credits that we purchased from some of the banks. The sole purpose was to recover our money. However, in the process of doing that, if we can help those businesses to improve, then it becomes a bonus.
If you were to ask me about my successes, I would tell you that part of it is in the aviation industry. If Aero Contractors has one or two aircrafts, it is because AMCON is there. Otherwise, they would have gone totally out of business. There are airlines that have gone bankrupt.
There is a structural problem in the aviation industry. You can't point to one airline that has successfully existed for 10 years. That tells the problem has nothing to do with the entrepreneurship per se. Poor corporate governance is part of the problem in the industry. If you look at most of the airlines, there is one individual that controls each of them. There is no proper corporate governance structure to guide the operations of those airlines. But we have been able to manage Aero and keep it alive. Also, if we had not intervened in Arik, the airline would have been history today.
I can tell you that our intervention in the aviation industry has contributed positively to that industry. We are still liaising with the government to see how to reform the industry. I don't think all the business people that attempted to go into the industry over the last 50 years are bad. But none of them has succeeded in running an airline business for a period of 10 years without any issues.
When I recently took a 9:00am Arik flight. It was the only aircraft on the tarmac. Abuja is the capital of Nigeria, and that is both the local and international airport. And for a country of 200 million people, that tells you there is a huge gap.
FN: What is the update on Arik Air and Aero Contractors regarding your exit from the two airlines?
AK: We have gone very far. With Aero, we have achieved more than 90% in the divestment process. With Arik, we have achieved more than 50%. Our strategy is to ensure those airlines survive and we want to find investors that understand the industry.
For those airlines to survive, there must be fresh capital. You need to have people who have the competence and are ready to invest and bring money to re-fleet the airlines. That is why it has taken us some time. But I think we are almost there.
By the time we are through within the next one or two years, you will see quite a lot of changes in the industry. The federal government has also expressed interest in starting a national carrier, which is independent of what we are doing.
FN: One of the concerns about AMCON is that it may constitute moral hazard to the banking sector and the wider business sectors. How does this apply to the aviation sector, if not the banking sector?
AK: I have had this type of conversations before. Some have talked about AMCON 2, or basically AMCON taking over more bad loans from the banks. That is not going to happen. As it is, we have not been able to sort out the first intervention. We have debt obligations in excess of N5 billion. So, how can we take more loans? We would be encouraging rascality. Somebody will think that if I default, there is a big brother there that can rescue him. I think that message has been clearly sent that it will not happen.
If any company has issues, it should be allowed to face them. If they can't meet their commitments they should be allowed to fizzle out.
The intervention that led to the creation of AMCON in 2008/2009 was due to the Global Financial Crisis (GFC). Countries all over the world created various vehicles to address the enormous leverage in the banking sector. Such intervention does not lend itself to what can be perceived as routine. Banks cannot say our NPL ratio has reached 40%, so somebody should come and take it over. I don't think anybody is in that mood again.
FN: Nigerians would also like to know where we are with the intervention with Peugeot Automobile Nigeria (PAN) plant in Kaduna State.
AK: We started the process of divestment about two years ago. We even identified the preferred bidder, which we recommended to the authorities. It was approved but there was this need for us to renegotiate with the company on the pricing. But during the process, the main partner of PAN, which is Automobile Peugeot of France, gave us a notice that it wants to align with another partner in Nigeria.
This development has affected the valuation of PAN. If the parent company says it is pulling out, it reduces the value of the business, given that PAN deals in only one product, which is Peugeot.
But this throws up a different debate that we must have. And I think the Ministry of Trade and Investment and other regulatory agencies need to look into this. AP France can't operate in Nigeria for over 40 years, out of which it was directly managing PAN for 30+ years, and then when PAN got into a dire financial situation, the French car manufacturer now decides to walk out and seek partnership with another entity.
What happens to the assets of PAN? This should not be allowed. After over 40 years, AP France now wants to leave PAN with a liability of over N20 billion. You can't do that anywhere, not even in France. I will be disappointed if the regulators approve the proposed partnership between AP France and the new party. PAN belongs to the government. If it is allowed to go under, it is the government that would lose money.
FN: If at the sunset of AMCON you are unable to dispose the many assets in your possession, what happens to them?
AK: We will auction them. Any asset is disposable; it depends on the price you put on it. There are some assets that you would incur unnecessary holding cost on. You would then reach a point where you just decide that it does not matter if you took a haircut. I am sure when we get to that point, we will do the valuation and then a decision would be taken.
FN: What is your outlook for AMCON and the Nigerian economy over the next 3 to 5 years?
AK: My outlook for AMCON is to recover my money and close shop. In the next three years, I should be able to close most of our relationships. I should be able to dispose most of those assets and close shop.
The outlook for the economy is good. The reserves are going up; the foreign exchange market is getting stronger; the liquidity situation is improving. Inflation is being managed properly and is going down. Governance is getting stronger; forget about the politics. Some issues can be twisted. We just need to pay attention to the security challenges because they are real.
But the economy looks bright. For instance, investor interest is increasing by the day. What people want to see is stability and be able to predict what will happen tomorrow. I think there has been stability in the last three years in terms of what you can predict.
Nigeria's future looks very bright. I don't think there is any place like Nigeria in the world. The margins are good. The ease of doing business is improving by the day. And once the other economic parameters are stable, people can predict what will happen in a week's time or a month's time, investors will continue to come here.
FN: What legacy would you like to leave behind when your assignment at AMCON is done?
AK: I want to finish my assignment and go. But I want to leave a system where the next person that replaces me will not take too long to get the institution to the next level.
Our situation at AMCON is peculiar. I believe what is important is for us to pass on the message that if you have an obligation, you must meet it. If you take a loan, you must repay it. Hitherto, people believed that with time their debt would go away. We want to create a system whereby even if we are not here, obligors will be held accountable. It is a process and we are just part of that process.
We also hope that we will be able to keep faith with the trust that has been put in us.
FN: Any additional thoughts.
AK: I want to use this opportunity to appeal to our obligors. They should come and talk to us. We intend to publish a list of who they are. We intend to go after them.
We don't believe that anybody has N10 billion or N20 billion to repay their debt. However, running away, or going to the courts to stall the unavoidable, is likely to bring only temporary relief. My predecessor did his bit and left. I am here now. Tomorrow, it will be somebody else and the debt will not go away. The point I am trying to make is that they have to repay these debts.
It is even in the interest of our obligors to talk to us. In the process, we may even introduce them to the financial institutions for support. We are a catalyst for economic development.
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