More listed companies are supporting Rights Issues in their capital raising plans as core investors choose not to alter the existing shareholding structure.
In Rights Issue, public companies raise additional capital by giving existing shareholders the right to subscribe to newly issued shares in proportion to their existing holdings.
“Rights issues are a classic way to keep away from new activist investors, hostile acquiring attempts from competitors, corporate raiders, etc,” said Tejas Khoday, a chartered financial analyst and co-founder at India-based FYERS, Free Investment Zone.
Unlike Public Offering or even Initial Public Offering (IPO), he noted that “a Rights Issue is a silent affair which does not attract any attention of the outside world”.
While the Nigerian equities market’s negative return year-to-date (YtD) at -16.28 percent further creates doubts around stocks valuations in case of public offerings, their take-up rates by investors and the issue of costs associated with public offering are also scaring corporates.
The equities market’s new low as typified by value erosion in some counters has further deterred many cash-strapped companies from approaching the market for public offerings at cheap prices. Unlike Rights Issue, public offerings are also made by already-listed companies that issue additional securities to the public, adding to those currently being traded.
“Nigerian equities remain one of the cheapest emerging market equities. Several bellwether stocks in banking, consumers and industrials remain well below fair value and trading close to 52- week lows,” said Lagos-based research analysts at FSDH Merchant Bank Limited. “Going forward, liquidity of stocks will drive performance as market will continue its choppy trading based in bargain hunting.”
UACN Property Development Company plc has received NSE approval for an equity capital raise of N15.96 billion by way of a rights issue to repay its short-term debt obligations.
Rights Issue 15,961,563,260 Ordinary Shares of 50 kobo each at N1 per share which was approved on October 10 is on the basis of 43 new Ordinary Shares for 7 Ordinary Shares Held as at Monday, September 30, 2019.
On September 26, NPF Microfinance Bank Plc got approval for Rights Issue and Public Offer. The company got regulatory nod for a Rights Issue of 2,286,657,766 ordinary shares of 50kobo each at N1.50 per share on the basis of 1 new ordinary share for every 1 ordinary share held as at September 12, 2019 and a public offer of 713,342,234 ordinary shares at N1.50 per share.
Last month, International Breweries Plc notified the investing public of its approved Rights Issue as proposed by the Board of Directors.
The company said its Board of Directors discussed the forthcoming Rights Issue and the proposed terms thereof and approved a Rights Issue price of N9 per share.
The price approved for the Rights Issue for existing shareholders of the company comes at a reasonable discount when compared with N12.6 it had traded on October 17.
Shareholders of Wapic Insurance Plc had ahead of National Insurance Commission’s (NAICOM) June 30, 2020 deadline for firms to comply with its new capital regime approved the company’s capital base increase to N15 billion from the current N8.5 billion level.
The company’s Rights Issue of 15,613,194,623 ordinary shares of 50kobo each at 38kobo per share was on the basis of 7 new ordinary shares for every 6 ordinary shares held by exiting shareholders. The qualification date for the Rights Issue was Thursday September 19, 2019.
C&I Leasing Plc has received regulatory nod to undergo a Rights Issue of 539,003,333 ordinary shares of 50kobo each at N6 per share.
The rights issue to existing shareholders will be on the basis of 4 new ordinary shares for every 3 ordinary shares held.
The qualification date for the Rights Issue is Wednesday September 4, 2019, according to an earlier notice.
On November 5, the Nigerian Stock Exchange (NSE) approved Red Star Express Plc Rights Issue 336,855,291 ordinary shares at N4 per share on the basis of 4 new ordinary share for every 7 shares held by shareholders as at August 21, 2019.
Fidson Healthcare Plc in June 2019 concluded its Rights Issue which helped the company improve its financial structure.
Sovereign Trust Insurance Plc on January 23 got the Bourse nod to undertake a Rights Issue of 4,170,411,648 ordinary shares of 50kobo each on the basis of 1 new ordinary share for every 2 ordinary shares held as at January 15, 2019. Most of these companies either planned future expansion or retirement of costly debts.
While companies’ preference for Rights Issue increases, analysts still maintain bearish stance on the domestic equities market.
Though some investors continue to maintain a risk-off approach in the market, some analysts do not rule out opportunities for bargain hunting.
With sentiment around banking stocks remaining strong, Vetiva research analysts said they foresee further investor interest in select names.
“However, this positive sentiment may not filter into the rest of the market, as other key sectors continue to under-perform,” the analysts said.
Iheanyi Nwachukwu
