Against the backdrop of economic woes which significantly impacted the Nigerian capital market in 2016 recording zero capital raise, companies quoted on the Nigerian Stock Exchange, NSE, have begun to take opportunities occasioned by increased investors' confidence to raise fresh funds to meet operational and investment needs.
Financial Vanguard learnt that about seven companies have got their shareholders' nod to raise N191 billion before the end of the year, 2017, while four firms have successfully floated about N7.2 billion from January to June 2017.
Meanwhile, market operators have stated that in the second half, H2'17, there are indications that more companies are likely to approach the market, particularly the banks as part of their efforts to shore up their capital adequacy requirements to regulatory threshold.
Money raised by way of rights issue floated in the first half of 2017 include : UACN Property Development Company, UPDC Plc N5.2 billion, Portland Cement Plc N1.02 billion , Livestock Feeds N750 million, and Meyer Plc N218 million.
Furthermore, the seven companies that have gotten shareholders' approval to raise about N191.3 billion this year include: Guinness Nigeria Plc N39.7 billion, Forte Oil N20.0 billion, UACN Plc N15.4 billion, Union Bank Plc N50 billon, Unilever Nigeria Plc N63.0 billion, and May & Baker Nigeria Plc N3.0 billion.
Details of the money raised by the four companies are as follows:
UACN Property Development Company Plc
The company had offered 1,718,750,000 ordinary shares of 50 kobo each at N3.00 per share. The gross issue proceeds stood at N5.2 billion. The net proceeds of the issue, according to the company, would be applied towards further development /completion of ongoing projects and acquisition of land to execute new projects. The parent company of UPDC, UACN, under its Group Treasury Arrangement made advances to UPDC totalling N3.69billion solely for working capital purposes. The advances are payable on demand and attract an annual interest rate equivalent to the Monetary Policy Rate, MPR + 150 basis points. The outstanding loan would be partly repaid by applying UACN's provisional allotment and any additional subscription thereof.
Portland Paints and Products Nigeria Plc
Portland Paints and Products Nigeria (PPPN) Plc had opened its N1.2 billion rights issue on February 7, 2017 through a rights issue of 600 million ordinary shares of 50 kobo each at N1.70 per share. The provisional allotment for the rights issue is on the basis of three new ordinary shares for one ordinary share. The application list closed on Wednesday, March 1, 2017.
Chairman of the company, Mr. Larry Ettah, stated that the new equity funds would be used to restructure the company's balance sheet and support its business expansion programme. "We will apply the planned rights proceeds to minimise the debt exposure risks of our business as well as carry out targeted expansion in our operations. The business will focus on its growth brands as well as make the necessary investment in marketing to improve its brands' awareness and visibility," he stated.
Livestock Feeds Plc
Livestock Feeds Plc, has raised N750 million rights issue, involving 1,000,000,000 ordinary Shares of 50 kobo each at N0.75 per share on the basis of one new ordinary share for every two ordinary shares held. The offer had opened on Tuesday, April 18, 2017 and closed Thursday, May 25, 2017.
Paint manufacturer, Meyer Plc opened its rights issue of 291 million shares at 75 kobo per share. The offer opened on Monday 9th of January 2017 and closed on Wednesday, February 15, 2017.
The shares of the company were allotted on the basis of one new share for every one share held. The proceeds of the offer were used for factory refurbishment and upgrade, working capital, and brand building and expansion. Meanwhile, details of the seven companies that had indicated interest to raise N191.1 billion this year are as follows:
The Management and Board of UACN Plc made proposal to help its subsidiaries to raise about N15.4 billion rights issue. According to a notice to the NSE, the Board said it needs an enhanced capital of N7 billion for Grand Cereals Limited; Livestock Feeds Plc (N0. 75 billion).
The Board explained that these subsidiaries need working capital support during the procurement season of November/December, which their banks would not provide timely, thus endangering the performance of the subsidiaries.
Guinness Nigeria Plc
Guinness Nigeria Plc had on March 15, 2017, through its stockbroker, Stanbic IBTC Stockbrokers Limited, submitted an application to the NSE for approval and listing of a rights issue of 684,494,631 ordinary shares of 50 kobo each at N58.00 per share on the basis of five new ordinary shares for every 11 ordinary shares held. The value totalled N39.7 billion.
The qualification date for the rights issue was Wednesday 15 March 2017. The company intends to use the funds to deleverage its balance sheet given its relatively high debt level; finance its working capital needs; and expand its operations.
The company got shareholders' nod at its AGM held Thursday, 11 May, 2017 to raise up to N63 billion by way of Rights Issue, subject to obtaining regulatory approval. It was gathered that if the rights issue is executed at the current market value of N33.25, the N63 billion proposed capital raise equates to new 1.89 billion ordinary shares that would be offered to existing shareholders (assuming all current shareholders take up their rights).
Forte Oil Plc
Forte oil has unveiled plans to raise N20billion in equity from the stock market. While management of the company has not stated if it will issue new shares or take a rights issue, investigations by Financial Vanguard reveals that the firm may be more inclined to a rights issue.
Union Bank Nigeria Plc
Union Bank of Nigeria Plc has commenced the process of rolling out N50 billion rights issue after getting shareholders' nod to raise additional capital to finance its growth strategy. The shareholders at the 48th Annual General Meeting, AGM, held in Lagos charged the Board of Directors to ensure the price and timing of the rights issue are favourable to enable members partake in the exercise.
May & Baker Nigeria Plc
May & Baker Nigeria Plc also received shareholders approval to raise N20 billion rights issue at its last AGM. The rights issue is aimed at shoring up working capital for the company.
Reflecting on the imperatives of the sudden rush to capital raise by quoted companies, the Managing Director/CEO, High Cap Securities Limited, David Adonri , stated: "As the economy recovers from stagflation, confidence is gradually being restored in the capital market. Issuers' confidence is also increasing hence, increase in primary market activities.
"If secondary market momentum is sustained, more activities should be expected in the primary market and we will see more companies raising fund in the second half.
"The equity market is currently witnessing an uptick in activities. A combination of the change in asset allocation rules for Pension Fund Administrators (PFAs) and opening of a window for investors and exporters has led to a sustained rise in the price of equities. The rising appetite for equities means an equity offer may witness a high level of subscription."
In his own reaction, Managing Director/CEO, APT Securities & Funds Limited, Mr. Kasimu Kurfi said "The recent coming of rights issues after a long break of public issues in the NSE is not a surprise to us. If you observed most of the companies coming with the rights issues, they have core investor among its shareholders. Most of the multinational companies rush for same, such as Guinness, WAPCO, Unilever and many others on the way to come.
"The reason for rise in rights issues are as follows: The new listing rule by the NSE allow a core investor to hold up to a maximum of 80 per cent instead of 70 per cent; devaluation of Naira by 50 per cent encourages multinational to convert their USD loan into equity; the price of the stocks of the companies for rights issues are very low given opportunity to take more; it is an opportunity to increase their holding in case others did not take their rights as most of the investor lack money to take their rights.
"Guinness used this opportunity to discontinue with her initial tender offer of N175.00 per share in 2016 only to come back and issue rights at N57.00. There is likely after all this rights, the stock will rise back to their high price. So, we will continue to see more rights in the market in the second half and so on."
Also reflecting on the situation, Mr. Sewa Wusu, Research & Investment Advisory, SCM Capital Limited stated: "The positive mood we have seen so far in the stock market is an indication that companies may be warming up to approach the market, particularly the banks as part of their efforts to shore up their capital adequacy requirements to regulatory threshold or standard.
"I also think as the economy eventually come out of recession, the need to boost expansion may induce companies to approach the market. I think it's a good development to have seen about four companies raised funds by way of rights just in the first half of this year as against none in 2016.
"Raising funds to boost expansion depends on the economic outlook and the performance of the stock market coupled with appropriate timing of the offers, either rights issues or IPOs. But a lot depends on how quickly the economy recovers to induce activities."
Mr. Sola Oni, Stockbroker/CEO, SOFUNIX Investment Limited said, "Companies float rights issue to raise capital for expansion. Rights issues can also be deployed to raise money for investment in Information and Communications Technology (ICT) and introduce new products among others. It is attractive because it is sold at a discount to compensate the shareholders for their loyalty to the company. The Adoption of rights Issues is a trade off of other options for capital injection such as bank loans, corporate bonds and a host of other financing instruments. As economy continues to recover, we shall see more companies raising further funds either by way of rights or public offering.
"The emergence of rights issues through the NSE symbolizes investor confidence in the company and the capital market. There is no doubt that the Nigeria's economy is on the path of stability as evident in encouraging corporate earnings and instances of market rally. This is a signal that shareholders would pick their rights. It is expected that the trend shall continue in the second half of this year."