Union Bank Nigeria Plc has a burden, and that is a huge accumulated loss of N254.13 billion in its balance sheet.
The good news is that the lender can reduce such negative retained earnings if proceeds from the capital raise are properly invested and such investment yields profit.
Proceed from the rights issue can be invested in fixed income securities and profit from it would bolster bottom-line hence reducing accumulated losses.
Shareholders should be concerned on how such investment would trickle down to the bottom-line because a negative reserve means they may not be paid dividend. Company law says a firm can only reward owners from accumulated profit.
Union Bank has announced that it has successfully raised N49.7 billion through a rights issue which closed on October 30, 2017 with subscriptions recorded at 120 percent.
The Central Bank of Nigeria (CBN) and Securities and Exchange Commission (SEC) concluded the share allotment and capital clearance review in December 2017.
“The support of our shareholders has been critical to the rebuilding and transformation of Union Bank over the past 5 years. With 20 percent oversubscription of the bank’s rights issue, they have once again demonstrated a high level of confidence and support for the bank’s short to medium term strategic priorities,” said Emeka Emuwa, chief executive officer of Union Bank.
“Having successfully raised the required capital, we will accelerate the pace of doing business in 2018 as we begin to deploy this fresh capital across identified business areas which will increase our capacity to serve customers better while also delivering returns to our investors in the short to medium term,” said Emuwa. Companies in Africa’s largest economy and largest oil producer are tapping into the capital market after a sharp drop in oil price since mid-2014 and severe dollar shortages undermined cash flows.
The cumulative rights issue of 14 firms has topped N340 billion so far as proceeds from the capital raise would be used to reduce debt and strengthen the working capital position.
For instance Flour Mills of Nigeria Plc has received clearance from the Securities and Exchange Commission (SEC) and Nigerian Stock Exchange (SEC) to proceed with the series 1 of the N39.90 billion rights issue.
BALA AUGIE
