Our public offer result indicates public confidence in Nigerian economy – Ihejiahi, MD/CEO, Fidelity Bank
By EMEKA OKOROANYANWU
Thursday, April 10, 2008

•Reginald Ihejiahi Photo : Sun News Publishing

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Fidelity Bank recently concluded a public offer which was over-subscribed to the tune of 233 per cent. The result of the offer pushed the bank’s shareholders’ fund to $1.1 billion.

Managing Director of the bank, Mr. Reginald Ihejiahi spoke to Daily Sun on the landmark achievement, dividend payment, the bank’s future plans and on other issues.

Your public Offer was over-subscribed. What is the significance of this to the future of Fidelity Bank?
First of all, this is the third time we are raising money. We did a Private Placement in 2004.

Our Initial Public Offer was in 2005. 2006 was the only year in the last four years that we didn’t raise funds. We spent it integrating the three institutions that came together to form Fidelity Bank Plc. I would regard the dramatic and pleasant outcome of our Public Offer in two ways.

First I think that it indicates the general confidence of the investing public in the economy of the country. This is an important point to note - that people make investment when they have good faith about the future. The second thing it denotes is the confidence the investing public has in Fidelity Bank. And again it is a very important thing. To have over 3001 people subscribe to your shares is a very major development indeed. To have 223 per cent subscription level is also a very, very major point.

And it is not just the size of the money you have raised but the number of people who actually trust in you that gives us some confidence. So, we have on both counts – confidence in the economy and confidence in brand Fidelity Bank Plc.

We are extremely excited. I want to also go ahead and say that we have a different set of reasons to be pleased. And that is the fact that we were able to say ‘yes’ to over 99 per cent of people who applied for Fidelity shares. That’s a very major development in any kind of issue in any kind of market.

How did you achieve this?
It is not an over night thing. You must build a brand and the brand must represent something. It must have resonance where it counts – that is when you ask people, they put their hands in their pockets and make investment in your brand. It is something we built over a long period, especially in the last four years, because the last four years signify major developments in our own industry due to consolidation and integration. I think people believe we have given them back.

If you look at our Offer advertisement – that we offered almost 860 per cent return in three years to people who first invested in our Private Placement in 2004 - it is not easy to come after three years and say, not only did I meet what I promised to do, but I surpassed it. So, we say we keep our word. We have been able to do that. I think that is the most important thing. We honoured our pledge to all our investors and that’s why this time, when we asked them to come and invest, we told them that this was the kind of brand we wanted to build.

Dispatching share certificates to investors
Well, you should know that what we just published over the weekend is the final phase in the approval from the regulators. From now on it goes into the department of the registrars. We are a quoted company.

Dispatch of certificates is the responsibility of the registrars. They are working very hard to ensure that the certificates are dispatched.
Efforts to re-list the shares on the Exchange
That also is in the programme because once you get this approval out we think that from the schedule we have we should be able to have the shares re-listed.

Current pricing of your shares
Yes. If you look at the projections we made, when we did our Private Placement, internationally, when you make commitment, people have documentation.
They go back to it and say ‘when you did your private placement, what did you quote?’ We exceeded the forecast for each of these periods. We are very confident now more than ever before that we will exceed the forecast we had in those documents.

I think people who are discerning already know that Fidelity stock is the kind of stock that should be the corner piece of anybody’s investment. And we think that the shares should actually be trading at a decent multiple over the offer price.

Fidelity Bank before the offer
The Offer was supposed to be one of those defining moments for us. The Offer put us at US$1.1billion in shareholders funds. Included in the Offer was US$250m in dollar capital. That was what we raised under the GDR. This is a very powerful momentum to drive our business, going forward.

This year alone, we should actually increase our branch presence by over 50 percent in one year, which is equivalent to building two banks under the old arrangement. And that’s very dramatic. Our corporate banking business is working very seriously and we are actually in most of the major deals that are going on in the industry.

We are also beginning to focus more aggressively on the consumer sector and you will soon start to see great energy coming out from that area as we begin to roll out the products we have been working on since the last six months. So, I will say that this is a great and exciting moment for anybody who works in Fidelity Bank. We have powerful momentum from our balance sheet to achieve all that we set our minds on.

Plans to go offshore
Well, you see, in Fidelity, we work in a slightly different way. Every thing we do, we make sure that we offer value. We don’t do things because they are the fad of the moment. We are currently concluding a study about what we want to do internationally. It is not just about going into every place, we want to have some coherence, because if you come back in three or four years, we want be able to tell you why that was the best decision to make.

Fidelity and External Reserve management
Yes. You know that we are one of the 14 banks that were chosen to manage the External Reserve for the country. Our partners in that regard are Investec of South Africa. Now that we are well in excess of the required shareholders fund for being able to manage it solo, we are contemplating that we should be able to manage a portion of the reserve by ourselves. And that’s something that we are not just thinking of now, we have been looking at it for quite a while. And now we have qualified to do it.

Plans for your shareholders
Yes. We always keep our word. The bank has a dividend policy that has been in place for three years. We have paid dividend for each of the last four years. Even in 2006 when most banks couldn’t pay dividend because of the goodwill challenge that came out of consolidation, this bank paid dividend. If you look at our Offer document you would see that it has a dividend projection. And that is the projection to June 2008. So we will pay dividend this year. We are already going full steam ahead to deal with June 30, 2008 as if it was a normal year.

So, we will pay very good dividend in June 2008. Also like I said before, the business progress on ground has been very, very phenomenal. So, what we are even debating is the size of the dividend, whether we should pay higher than what we had forecast. The minimum is what we put in the Offer document.
And what was that?
We had forecast to pay minimum of 22k per share. So, we probably will pay more than that this time.

Banks marketing aggressiveness after an offer
Well, once you take money from people as part of your equity, you have a responsibility to deliver returns to them. Capital is different from deposit as you know, and they perform different roles, even if they join to contribute to the overall liquidity position of the bank. But the most important thing is that banks must acquire customers, they must service customers. The resolve never really ends. You never get to a time when you say I have raised so much money I don’t need a customer.

Banks and excessive charges
I think on the contrary, if you check the number of transactions that a bank conducts every day, you would see that the number of complaints are really infinitesimal compared to the number of satisfactorily completed transactions. Quite frankly, it is not an unusual problem. It is just that once there is a problem it gets blown out of proportion. It is not in the interest of banks to have customers who are not happy.

Anybody who runs a business knows that the best customer is the one who keeps coming back. The banking industry has also gone ahead to have self-regulation through the sub committee on ethics and professionalism. They are doing an excellent job.

The sub-committee looks at all complaints and deals with them very promptly. At least we have lots of feedback from customers who are very happy with the way the sub-committee has worked. And that is also due to the amount of litigation that the industry has experienced. It has also helped to make customers get what they are asking for without having to hire lawyers. So, in a nutshell, the first thing is that the number of complaints the banks have is very small compared to the overall number of customers they have and the overall number of transactions they conduct everyday. Secondly, the banks are taking steps to regulate themselves.

Banks and the real sector
Very often, one hears that, but the evidence is different. If you look at the loan books of most banks post consolidation, you are likely to see a tremendous transition to a more balanced book where we are actually financing and supporting the real sector.
The bulk of the investment made under the SME was actually to people who tried to manufacture something.
And that is a fact that people usually overlook. Of course banks have to work within the context of the economy. This is still an economy that largely imports and sells rather than producing and selling. So, the job of the intermediator, which the banks actually are, is to support the economy.

Banks are not going to switch off and say, we are not going to support people who are importing until they start producing. The economy would grind to a halt. So, the fact is that since consolidation, which is the strengthening of the capacity of banks, they are doing much more for the industrial sector, for the small businesses than they have ever done before.

High interest rates and the banks
You remember there was a time interest rate in this economy went up to 30 per cent and 40 per cent.
We were in this industry at that time and we know how much it choked life out of businesses. We then saw the interest rate come down and stabilize for a while at 20 per cent. Now we are at a time when most borrowers are borrowing in the mid – lower double digit. But let me also say this – the bulk of the money that the banks lend out belongs to you and I. So, it also depends on what certain depositors expect the banks to pay them for the money they are keeping in the bank.

That’s also one part of the equation that people often lose sight of. The other part of the equation is what happens to the real value of the money due to inflation. Because the person who is lending to a bank as a depositor would like to get a real return after compensating for inflation. The good news really is that inflation has actually been coming down in the last two - three years.

What I am saying is that we are in a better position to do it than we have never been in terms of the flight of money and in terms of the interest rate. The final thing I would like to add is that banks, including banks like ours are also looking to raise money for particular niche businesses. Some of these monies come from abroad, at less punitive rates of interest. We are able to look at how the on-lender to people within the economy, so the trend tends towards lower interest rate and I am very positive about it. I think this is the best time in the economy in well over twenty years.