Nigerian Distressed Assets...My Solution

There is a danger in letting foreign institutional traders or individual investors acquire distressed assets of any country especially an expense driven (commodity based) economy like Nigeria. The danger is best explained in the nature of current 'debt to equity ratio' of most Nigerian business, that where supposed to be great companies that rose beyond their estimate in the past decade and now had to deal with the problems of inflation and default. The bigger the company the more distressed its assets and now some of them cannot afford to survive given the decaying nature of Nigerian bpp.

Capital gains profit in emerging third world countries is so striking correlative to their stockmarket that shortfalls in its marketplace easily acede to fear which more or less proclaim
a lasting expression of its asset class. In essence what represents the overall performance of
any country's asset class are not only matters of profit and dividend but can be affectionate to matters of default on payment. Markets differ from one and another and for profit to be certain grade. How this is measured is one of emerging market systemic problem but it is a function of external derivatives, including national debt and currency flunctuation.


Most emerging markets especially have to deal with this problem of rate and fair value and it
is usually a pitfall since the system unbeknowest to them often imply their demise. In essence
a country's misfortunate are sometimes relative to thier level of sharpness and training in managing transactions that are not very clear to them. For instance IMF as an ambitrage to Nigerian CBN will always insist on direct capitulation of a certain currency of conduct or order
of market in our country, in this case the Euro and by association, the Dollars. If this trend in bulked the host country like Nigeria, blinded to the foolishness of European anchor for Naira will always lag behind these currencies and dimiish in value with or without imput from outside market.


If say 7 Billion dollars enter Nigeria via commercial papers like Western Union, Travellers Check, Vigo, Eastern Union and capitulated in Nigeria in Dollars and Euro, then statistically the
'currency' of capitulation will always gain against the host country say the Naira and Nigeria.
Foreign capitulation in Nigeria is one of the grossiest aspect of our country's Naira devaluation whose end result is a fountain of distressed assets. The impart of this sort of deal is not very clear unless you understand that price is a function of the market and performance usually estimated by 'distressed assets' and default and also the true function of the stockmarket.


This will make the saying true that 'existing trade-able (tradable) assets' are directly equal to existing market which simply mean that the fair value of our market is the estimate of our total
distressed assets. Total distressed assets are the direct consequence of weak internal dynamics of any financial structure. But naturally currency flunctuation in Nigeria reflect the overall performance of the Nigerian finances market, hence its value. That is if Banks are 82% of the total financial market in Nigeria, then the price of these distressed assets in foreign hands over a Bank dominated market become 'inestimate'.


There is the issue of Toxic assets which are completely which are completely different from distressed assets and that matter of difference is clarified by the fact that you cannot rescue a Bank by existing its distresse assets from balance sheet. You can help Banks through acquisition of Toxic assets and if this acquired by foreign institutions they could be subjected to 'bid ask' and to market forces a commission to reverse auction of abandoned properties as a way to sometimes hold on until there is redemption.


With distressed assets, we are dealing with companies that are still dying facing decay but not yet entirely interred. These companies still worth something by market value and as such the country of its stay can still overlook it. The truth is that the signs of decay are not visible and probably do not exist but can become infected by the take over process and by hostile bidding enironment. Banks are still in possesion of these assets and would mean a useful penetration of operating finances if there is a friendly vulture party seeking to totally acquire the distress. Secondly there is no end to their bad market wishes and the contracted party can abandon the project and do something else if they chose. The issue is still non binding.


It is not easy to do without the other unless you look at a distressed assets as 'toxic assets' in process. Unless you also see it from the damage that interested companies could do to say the Nigerian oil and gas. The exchange bargain if you understand its deals would involved trading on top the margins, a dangerous penetration of Nigerian cash crops. As far as the companies are concerned, they are not saved at all, but it is good to remember that in good times, these distressed companies were very good but given the temperature of financial meltdown they have become entirely worthless especially due to crushing weight of a very strong dollar.


If the Nigerian government had made the mistake of bailing out banks, the hammer on existing Nigerian businesses would be harder. After a 6-9 months of expenses, the Nigerian businesses forever tied to IMF would fall faster. Since there was no bail out, the currency loses externally but become poise to recover its weight which might slowly but gradually re-tool retail investors; the grain and 'carveat emptor'.


If the Central Bank of Nigeria had contacted a company with such interest on Nigerian 'distressed assets' , they should be warned that this should not include foreign capacitors. It should be a 'bid ask' only open to registered members to registered members of stockmarket. That is when there inflation, a Darwanian 'gorilla' in any market is better than any 'vulture' and any bird of prey. If Central bank has done the deal, they should derail the deal on the condition that Nigerian Naira and CBN is still satelite for IMF.


In essence as far as Nigerian markets are concerned poorly represented Naira is equal to the value of its market. Unless the country doesn't know the vast im plications of such move then we are dealing with our inability, but from what seems like a friendly deal of foreign bail out, Nigeria will be put under a knife that he will never recover from. For me I have never heard of such thing as friendly bail out. It's a trap.

1,
My solution is that Nigeria has a perfect oppotunity to creat one or two MBS and ABS in the country which will be different from the treasury division that is presorted to acquire Toxic Assets. We need a kind of Fannie Mae, Freddie Mac and other sorties that can independently manage federal guarantee loans coming from part of fiscal budget with a view to acquire 'distressed assets' and the option to convert any distressed company's 'preffered' shares into common shares and vice versa. This is not a perfect solution but it is a 'safety net' given the economic jinx. As long as we participate in OPEC, there is no need for arbitrage especially those coming under the coy of 'foreign bail out'.

2,
Banks should make public their distressed assets and allow a full position to be taken, either to auction off what is existing at open bid or find private muscle within the Banking institution to engineer the restructure. You can use collaterised baits and extention clause.

3,
When a market is overload, innovate, avoid the surface expansion; penetrate the local market, sink deeper. When Banks are dealing with bad companies, they should creat outlets, build bridges, move business to a different world, try America, try Europe.

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