Source allAfrica.com: Kingsley Ighomwenghian, 23 February 2010

Following the severe bashing received by stock markets across the globe, the boards of companies listed on the Nigerian Stock Exchange (NSE), among others, have gravitated towards rights issues, in preference to public offerings.

While there were very few capital raising exercises in 2009, those who have been bold to seek fresh equity capital since then have done so, mainly by way of rights to existing shareholders. This is particularly true, explains a market analyst last weekend, in the case of companies with core investors. Others have, or are planning to raise fresh funds by way of bonds.

Those ready for the bonds market are mostly banks that survived the tsunami following the last year’s audit examination conducted by the officials of the Central Bank of Nigeria (CBN) and the Nigeria Deposit Insurance Corporation (NDIC). The examination showed that while nine of the nation’s 24 banks – Afribank Nigeria, Bank PHB, Equitorial Trust Bank, Finbank, Intercontinental Bank, Oceanic Bank International, Spring Bank, Union Bank of Nigeria and Wema Bank – failed across three parameters – liquidity, capital adequacy and corporate governance.

Unity Bank failed in respect of only capital adequacy while the executive management teams of eight banks were fired and replaced. Unity Bank was spared and given till June 30 this year to raise fresh funds. Wema Bank was also spared following the advent of a new core investor, SW-8 Investment Limited, which has also been given a June 30 2010 deadline to recapitalise the bank to take care of liquidity and capital adequacy, having brought in corporate governance.

Those known to have indicated interest in recapitalising by way of bond issuance include First Bank of Nigeria and the United Bank for Africa to the tune of N500 billion each; Diamond Bank, N200 billion, just like Guaranty Trust Bank, while Sterling Bank is believed to have made much progress in its bid to raise N100 billion through bonds. Zenith Bank is also in the race for N300 billion from bond issue.

Of the amount being sought by UBA, hopes are that N400 billion will be denominated in Naira, leaving the remaining in foreign currency.

Conscious that they are competing for limited resources, the banks have since late last year set about the process of book-building to determine, among others, how much would be needed at every point.

International newswire- Reuters, had early November 2009, quoted Bisi Onasanya, chief executive of First Bank, as saying that the money being sought is to help it compete well in the second round of consolidation in the banking industry.

“If there is any bank in Nigeria that is ready or is adequately prepared for an acquisition, I think there is no other bank than First Bank,” Onasanya told Reuters.

“We do have plans for an international acquisition, a merger, but we also have our own expansion strategy,” he said, adding that discussions about an international deal were ongoing but declining to give any further details.

Craze For Rights Issues

According to market analysts, there is now an attraction for rights issuance by companies, which would have gotten core-investors’ buy-in or those of a major shareholders’ bloc to ensure the success of the offer. Another attraction, it is believed, is the attractive discount to market price.

Since the end of last year, those that have raised or are sourcing funds by way of rights include: Cadbury Nigeria, Oando, Interlinked Technologies and Hallmark Paper Products. Before now also, African Petroleum and Ecobank Nigeria have pooled huge capital from the market by way of rights.

Integrated energy conglomerat, Oando Plc, at the weekend, concluded its rights issue to raise net proceeds of about N20.437 billion, as part of efforts to position it for healthy competition in the capital-intensive oil and gas industry. The amount is being raised by way of 301.694 million ordinary shares of 50 kobo each at N70 per share to existing shareholders on the basis of one new share for every three held as of close of business on December 18, 2009.

Analysts agree that the robust N23.99 difference between the price of N93.99 on the Nigerian Stock Exchange (NSE) and the rights offer price, representing a huge discount of 25.52 per cent. This is seen as enough attraction for existing investors to not only take their rights, but seek additional units, just as the success of the offer is hinged on the fact that the Ocean & Oil Investments (Nigeria) Limited holds a bloc 32.72 per cent stake. The core investor is expected to take its rights, just as some other major minority investors would take and possibly increase their stake to tap into the long-term growth trajectory of Nigeria’s integrated energy firm.

Cadbury Nigeria

Food beverages and confectioneries’ giant, Cadbury Nigeria, in October concluded its rights issue to raise N22.218 billion, as part of efforts to pull the company out of murky waters, while helping to put events of the recent past behind it, and significantly assisting it reclaim its pride of place in the market.

A total of 2.458 billion units were on offer to shareholders at N8.65 each, on the basis of seven new shares for every three held, as at June 26, 2009, representing a 36 per cent discount on the market price of N13.54 each.

Among others, the offer’s success was predicated on the 50.02 per cent stake held by its parent company, Cadbury Schweppes Plc, leaving 49.98 per cent to Nigerian individuals and institutional investors.

Interlinked Technologies

The company, in a bid to position for competition ahead recently concluded a rights issue of about N972 million to shareholders, with the coming on board of a new core investor, Boussole Integrated Limited, consisting of some young Nigerians who took over the affairs of the company in 2008.

Another reason for most rights issue, as in the case of Interlinked Technologies, is that it gives shareholders, most of who have endured so much hardship with the company, especially, if such was previously comatose, as was also the case with office equipment makers, Thomas Wyatt Nigeria, an opportunity to take prime position in such companies before the public is giving a chance. This is to ensure that the existing shareholders become the first to benefit when things begin to turn around for their companies, besides allowing them to participate in the resuscitation process.

Ecobank Nigeria

The management of Ecobank Nigeria Plc, mid last year hinted investors through the Nigerian Stock Exchange (NSE) of the receipt of N45 billion from its parent company, Ecobank Transnational Incorporated Plc. The amount represented subscription for shares in its proposed rights issue exercise initially scheduled for later that year. The amount represented part of the group’s 71 per cent holding in Ecobank Nigeria, a level Nigeria’s shareholders believe should be drastically reduced in the coming offers. Shareholders of the bank at the annual general meeting in late 2008 approved the board’s bid to raise N120 billion fresh capital from the capital market. This followed a proposal by the board as part of the “special business” of the meeting seeking permission to raise the money “through any or all of the following: convertible loans, debt, equity or by way of offer for subscription of shares by either, or a combination of offer for subscription to the general public with a preferential allotment to existing shareholders or rights issue.”

Debt Refinancing

According to the Oando rights circular, the bulk of the fund being sought from both individual and institutional investors in Nigeria and South Africa is to make “part payment of acquisition cost of upstream operating assets, including OML 125/134 (being payment of Merrill Lynch arranged Ashmore Group facility guaranteed by Zenith Bank Plc and Guaranty Trust Bank Plc)”.

This is expected to take N14.919 billion, or 73 per cent of the net offer proceeds, which to be shared N7.459 billion each to both financial institutions.

According to analysts at BGL Securities Limited in a report, debts increased by 15 per cent to N155.63 billion in June 2009, over the N135.2 billion in the in the corresponding period of 2008, while the debt to equity ratio is currently at 3.2 from 2.90 in June, 2008.

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