Guaranty Trust Holding Company (GTCO) is preparing to write off a significant loan extended to oil and gas company Aiteo Group, while also launching an aggressive recovery strategy.
The loan, which has been a source of concern for GTCO for several years, is set to be written off before the end of 2024, as disclosed by GTCO’s MD/CEO Segun Agbaje during the bank’s 6-month investor earnings call monitored by Nairametrics.
The Aiteo loan has been GTCO’s primary forbearance loan, and despite restructuring efforts, the outcome has not met the bank’s expectations.
Agbaje expressed the company’s readiness to move forward by writing off the loan and focusing on aggressive recovery measures.
This significant move, expected to be finalized by the end of 2024, will see GTCO remove the loan from its books without causing a substantial impact on its financial performance.
Forbearance and the Aiteo Loan
The Aiteo loan, GTCO’s largest forbearance issue, has been problematic for years. According to Agbaje, the bank had restructured the loan in an effort to give Aiteo more time to meet its obligations.
- However, these efforts failed to produce the desired results. With the forbearance period set to expire in 2024, GTCO has no intention of granting further leniency.
- Agbaje stated, “We’ve put ourselves in a position to write off that loan this year, and it won’t affect our P&L.”
GTCO has been transparent about the challenges it has faced with the Aiteo loan, with Agbaje expressing frustration at the lack of progress.
- “It hasn’t gone the way we like, and I’m a bit tired of making excuses for it,” he said during the call, outlining the bank’s plans to move forward aggressively in recovering the funds.
Capital Buffers and GTCO’s Loan Book
During the call, Agbaje explained that GTCO had already provisioned over 50% in capital buffers for its Stage 2 loans, including the Aiteo loan.
- This provisioning allows the bank to absorb the losses associated with the non-performing loan without undermining its profit and loss (P&L) statement.
“We’ll probably write off the Aiteo loan this year and then go aggressively on a recovery drive because we don’t like how it’s been playing out,” Agbaje stated.
GTCO’s loan book currently stands at around N3 trillion, with the Aiteo loan representing a substantial portion of its non-performing loan portfolio.
- Agbaje emphasized that the size of the loan book, not necessarily the quality of the loans, contributed to the Aiteo loan being a larger percentage of the bank’s portfolio.
- He indicated that if the loan book were closer to N7 trillion, the impact of the Aiteo loan would have been less significant.
Nonetheless, the bank’s strong capital buffers ensure that it is well-positioned to absorb the impact of this write-off.
Aiteo’s Legal and Financial Struggles
Aiteo’s financial woes are not new. In fact, the oil and gas company has been embroiled in a series of legal battles with its lenders, including GTCO.
- These disputes date back to 2014, when Aiteo took out loans from Nigerian banks and the African Finance Corporation (AFC) to acquire Oil Mining Lease (OML) 29 from Shell Petroleum Development Company (SPDC).
- The loans, amounting to about $2 billion, were largely financed by a syndicate of Nigerian banks, including GTCO, which collectively contributed 75% of the funding, while Shell provided the rest via a vendor financing arrangement.
- The repayment of these loans has been fraught with delays and legal complications. In 2019, the lenders demanded repayment within seven days, but Aiteo refused, asserting that it was not liable to meet those demands.
- Citing operational challenges and invoking Force Majeure, Aiteo argued that it had requested a restructuring of the loan facility, which the lenders did not accept. Aiteo then initiated legal proceedings in Nigeria, seeking a declaration of non-liability from the courts, but this only led to further complications.
- In response to Aiteo’s legal maneuvers, the banks—including GTCO—took the matter to arbitration in the United Kingdom, seeking to enforce the terms of the original loan agreements.
In April 2022, a UK high court ruled in favor of the lenders, including GTCO, granting them an anti-suit injunction that restrained Aiteo from pursuing legal action in Nigeria.