By Chinwendu Obienyi and Chukwuma Umeorah
Barring any unforeseen circumstances, Nigerian banks, especially, tier-1 lenders have planned to raise capital to the tune of over N800 billion by offering existing shareholders the right to buy additional shares at a discounted price
This is coming as the Central Bank of Nigeria (CBN) in a circular signed by Haruna Mustafa, Director, Financial Policy and Regulation Department, directing commercial, merchant and non-interest banks to raise their capital base in line with their license requirement.
A rights issue is a way for companies 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. Troubled companies typically use rights issues to draw down debt, especially when they are unable to borrow more money.
According to the apex bank, the overarching objective of its recapitalization directive is to strengthen the Nigerian banking system, especially against the background of prevailing macroeconomic challenges that is currently being witnessed.
It said, “Banks may also opt to go through mergers and acquisitions, and downgrade their current license authorization or upgrade. The different capital requirements reflect the different risk profile, size and license category of the banks. For International banks, the current capital requirement is N50 billion and under the new requirements, international banks are expected to hold N500 billion in capital.
For National banks, the requirements are currently at N25 billion, but under the new policy, they are expected to hold N200 billion. Merchant banks currently are expected to hold N50 billion. So the list goes on and on all the way to the least, that is the non-interest bank, which is a regional bank, holding N10 billion, up from N5 billion initially”.
Owing to this directive, Daily Sun learnt that banks quoted on the trading floor of the Nigerian Exchange Limited (NGX) are assessing their current capital position to determine how much additional capital they need to raise to meet the apex bank’s requirements.
For instance, Access Holdings Plc, has announced plans to raise a staggering N365 billion through rights issue and is also seeking a combined capital raise of up to $1.5 billion via equity, quasi-equity and debt issuances.
The bank noted that the plan is expected to fortify the bank’s capital base, supporting its continued expansion and its ability to seize emerging opportunities in the financial sector. As part of this monumental rights issue, Access Holdings (Access Corporation) will see an expansion in its issued share capital from N17,772,612,811.00, divided into 35,545,225,622 ordinary shares, to N26,658,919,216.50.
This expansion is facilitated by the creation of an additional 17,772,612,811.00 ordinary shares, each priced at N0.50 Kobo, which will rank pari-passu with the existing shares of the company.
Similarly, First Bank Holdings wants to raise additional capital of N300 billion ($231 million) at a shareholders meeting scheduled later this month. According to a statement by First Bank Holdings, the capital raise can be issued via a public offering, private placement or rights issue in the Nigerian or international capital markets or a combination of the listed methods.
Guaranty Trust Holding Company (GTCO) said it intends to raise $750 million via rights issuance, public offerings and private placements in the Nigerian and/or International capital markets either as standalone issues or by the establishment of capital raising programmes. It also said that it aims to increase share capital from N14,715,589,612 to N22,215,589,612.
Daily Sun had reported that Fidelity Bank is willing to raise 3,200,000,000 units representing one new share for every 10 held. Furthermore, Jaiz Bank and Wema Bank all intend to raise funds worth N5.4 billion and 8.57 billion (ordinary shares) respectively.
The likes of United Bank of Africa (UBA) and Zenith Bank, also announced their intention to raise capital via rights issue but did not specify the amount. It is believed that the amount these banks are targetting might be over N800 billion.
At a forum monitored by Daily Sun, the Chief Executive Officer, NGX, Temi Popoola, noted that the demand for private capital surpasses that of public capital, leading to the consideration of a private market tailored for non-listed companies like startups.
The National Coordinator, Progressive Association of Nigeria, Boniface Okezie, while lamenting the state of the economy, noted 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 issues to be able to expand and deliver value to us. I cannot blame them as all of us are suffering and smiling but at the same time, they should consider timing as it is an essence, especially during hard times like this”, Okezie said.