By Chinwendu Obienyi
With soaring inflation, exchange rate challenges as well as other macroeconomic challenges bedeviling the nation’s economy, about eight companies (banks inclusive) seeking to expand their level of businesses are considering raising about N44.99 billion from rights issue this year, Daily Sun findings has revealed.
This is even as shareholders expressed concern about the timing of right issuances, suggesting that it may not be the right time to undertake such initiatives given the current economic challenges.
A rights issue is a way companies use to raise capital by offering existing shareholders the opportunity to buy additional shares at a discounted price. A company may need extra capital to meet its current financial obligations. Financially challenged companies typically use rights issues to pay down debt, especially when they are unable to borrow more money.
However, in a bid to expand their businesses, increase shareholder value, strengthen its market position, several companies listed on the platform of the Nigerian Exchange Limited (NGX) amid soaring inflation, exchange rate issues, and other macroeconomic challenges are reportedly seeking to do that via rights issue.
Among these companies are Fidelity Bank Plc, FBN Holdings, VFD Group, Jaiz Bank, Ikeja Hotel Plc, Sovereign Trust Insurance Plc, McNichols Consolidated Plc and Wema Bank Plc.
For instance, Fidelity Bank had announced that it is willing to raise 3,200,000,000 units representing one new share for every 10 held. The bank noted that the decision to raise share capital is in view of strategic growth. Also seeking approval from NGX, FBN Holdings Plc noted that it intends to float right Issue of 8,973,823,198 ordinary shares of 50 kobo each at N15.50 per Share on the basis of one new ordinary share for every four ordinary shares.
Furthermore, Jaiz Bank, Ikeja Hotel, McNichols, Sovereign Trust Insurance Plc and Wema Bank all intend to raise funds worth N5.4 billion, N3.5 billion, N265.62 million, N2.84 billion and 8.57 billion (ordinary shares) respectively. Just recently, VFD Group noted that it is seeking to raise about N12.5 billion in new equity funds from its shareholders.
Apparently seeing that this is a trend and a way to tap into the significant growth potential of companies, the NGX recently stated that discussions are ongoing with the Securities and Exchange Commission (SEC) on the launch of a private issuance market that permits non-listed companies to raise capital and conduct other transactions through the Exchange’s platform.
Disclosing this during a forum monitored by Daily Sun, the Chief Executive Officer, NGX, Temi Popoola, noted that the demand for private capital surpasses that for public capital, leading to the consideration of a private market tailored for non-listed companies like startups.
However, shareholders, expressing their concerns over the rising trend, believe that the success of right issues depends on various factors which include market conditions, investor sentiment and specific strategies and financial health of the companies involved which is currently missing due to the uncertainty in the economy.
According to them, rights issues are coming at a very hard time.
The National Coordinator, Progressive Association of Nigeria, Boniface Okezie, whilst lamenting at the state of the economy, noted that the exchange rate uncertainty amongst other challenges have put companies at an edge. He explained that most companies’ financial performances were mixed and called on the companies to consider rights issue at an appropriate timing.
“At a time when the cost of fuel, food and inflation have increased drastically, it is quite unfortunate that the companies are resorting to rights issue to be able to expand and deliver value to us.