Carlyle Group buys into Diamond Bank as Nestoil fails to acquire block shares

By The Citizen

There are indications that one of the world's leading private equity firms, the Carlyle Group, may have invested in Nigeria's Diamond Bank Plc, as it was said to have used the Rights Issue window to buy up the stakes of a third party company with substantial links to Diamond Bank.

THE CITIZEN reliably gathered that Carlyle Group, which is a global alternative asset manager with more than $203 billion in assets under its management, was said to havestruck a deal with KUNOCH Holdings to inject about N20billion into the bank through a shares-sale agreementsealed during the recently-concluded Right Issue Offer by Diamond Bank which is expected to net in N50.4bn.

It was gathered that the deal would supplant a previous investor with a new one that would be linked to KUNOCH Holdings through exit and buy-out clauses in the shares-saleagreement.

THE CITIZEN also learnt that Diamond Bank would soon announce Carlyle Group as a key investor in the bank.

This development, it was gathered, would dispel unconfirmed reports that Carlyle Group was an underwriter in the Diamond Bank Rights Issue.

However, it was alleged that the deal for Carlyle Group to access Diamond Bank through KUNOCH stakes in the bank was finalised after some corporate intrigues frustrated the plans of another company interested in acquiring controlling shares in Diamond Bank.

In August 2014, Diamond bank had notified the Nigerian Stock Exchange (NSE) that KUNOCH Holdings which belongs to Mr. Pascal Dozie (who is also the founder of Diamond Bank Plc) had successfully completed the purchase of Actis DB Holdings Limited, a company which holdsDiamond bank shares put at 14.79%.

However, THE CITIZEN reliably gathered that a drama had ensued during the initial stages of the transaction.

According to a reliable source, KUNOCH priced Actis N7 per share of its equity holdings in Diamond Bank but without knowledge that Nestoil Plc was also negotiating with Actis to buy out its equity which was put 14.8%.

The source said that the Nestoil-led group had privileged information that there was an agreement reached between Actis and KUNOCH at the time Actis was acquiring theshares in 2007, which was that any time Actis wanted to divest, KUNOCH should have the first right of refusal.

It was gathered that in order to overcome this impediment, Nestoil had allegedly negotiated with Actis to buy off, at a negotiated price of N9 per share, the Special Purpose Vehicle (SPV) registered in Mauritius in the name of Actis DB Holdings Limited.

The deal was near consummation when information of the discussions was said to have reached Mr. Dozie and he was also intimated of the implications of allowing the deal between Actis and Nestoil to sail through, which included, but not limited to, the emergence of an external interest with substantial stakes in the bank and without links to the founders of the bank.

Therefore, our correspondent gathered, Mr. Dozie sprang into action to stop the Nestoil deal by offering to match the N9 per share and also invoking the first right of refusalagreement it had with Actis in 2007.

But Actis demanded that KUNOCH Holdings must pay, within thirty days, the total value of the shares running into several millions of dollars.

That was how, it was said, Carlyle Group came into the picture and provided the funds for KUNOCH Holdings to buy Actis stakes in the bank.

KUNOCH, it was learnt, bought out Actis and sold to Carlyle Group slightly above the volume of shares Actis DBpreviously held in the bank, but with another agreement to have the first right of refusal whenever Carlyle Group wantedto exit the bank.

Though it is not clear if any staff in the bank was aware of Nestoil interest to buy out the SPV, however, THE CITIZENgathered that some top management staff of the bank wereallegedly held responsible in the botched interest.

It was gathered that because of the allegations of connivance or act of omission regarding Nestoil interest, the bank wouldsoon effect a reorganisation to weed out those who allegedly knew of the transaction but kept sealed lips.

Meanwhile, THE CITIZEN made several attempts to get the Carlyle Group in London to react to the development.

When our correspondent called Carlyle Group in London, Catherine Armstrong of the Corporate Communications department, promised get back to THE CITIZEN with the requisite information. However, she did not confirm nor deny any relationship between Carlyle Group and Diamond Bank.

But follow-up attempts to get Carlyle Group's response wereabortive as at press time as THE CITIZEN was yet to receiveexpected e-mail communications or return calls from the Group.

When THE CITIZEN asked the Company Secretary of Diamond Bank, Nkechi Nwosu, about the bank's relationship with Carlyle Group, she stated that 'as at today, Diamond Bank has no relationship with Carlyle Group.

'Until we get the approval of the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC) on the Rights Issue, we will not know what relationships we have entered as the shares were freely traded on the stock exchange. It is only at the end of the process that the Registrar will issue the list of shareholders, those who bought into the bank.  Anything about the Rights Issue is still awaiting SEC and CBN approvals', she added.

Nwosu also stated that 'the bank did not use an underwriter during the Rights issue and I am not aware that we entered into an underwriting agreement although, it is normal to get an approval for an underwriter for all capital-issued transactions just in case you need it. In our case, we did not use an underwriter'.

On the alleged interest of Nestoil Plc to buy into Diamond Bank, Nwosu asserted that 'I do not know of any relationships between Actis DB and Nestoil Plc.'

However, when THE CITIZEN contacted Nestoil Plc, the company confirmed its interest in acquiring the shares of Diamond Bank Plc but had decided to drop its aspirations.

In a statement its Management sent to our correspondent, Nestoil Plcexplained that 'we had an initial interest in acquiring the shares, but subsequently decided to discontinue our pursuit of the interest due to other compelling business decisions.'

Meanwhile, attempts to reach KUNOCH Holdings were unsuccessful before THE CITIZEN went to press.

Capital for private equity is often raised from retail and institutional investors, and can be used to fund new technologies, expand working capital, make acquisitions, or to strengthen a balance sheet which is in line with Diamond Bank's objectives of raising fresh funds through the Right Issues.

According to Diamond Bank, the net proceeds from the Rights Issue would be applied towards the development of the bank's Information and Communications Technology infrastructure.

The prospectus for the Issue said that 4% of the proceeds will be devoted to the development of the Bank's IT infrastructure which is estimated to gulp N1, 970,931,436 and will be completed in 2015. Similarly, 10% of the proceeds will bechannelled to supporting the bank's working capital, which translates to N4, 927,328,589.

The sum of N42, 375,025,868, which is 86% of the expected proceeds will be deployed for the expansion and refurbishment of the bank's business locations to be completed in 2016.

The issue, which opened on July 30, saw the bank offering a total of 8,685,145,863 ordinary shares of 50 kobo each to its shareholders in the ratio of three new ordinary shares for every five ordinary shares held as of June 13, 2014 at N5.80 per share.