Investors might decide to buy from the secondary market rather than picking up their rights or participate in new issues as continuing decline in share prices at the secondary market has created huge discounts against new issue prices.
Companies that had recently launched bids to raise new capital have demurred from furthering the issuance process as share prices continued to fall below intrinsic fundamental values.
After losing N283 billion last week, Nigerian equities started this week with a loss of N228 billion in the five-hour trading session. Average decline stood at 2.22 per cent as relatively higher losses by 46 stocks, including market’s largest stocks, overwhelmed modest gains by nine stocks. The opening downtrend pushed the negative average year-to-date return at the Nigerian stock market to -15.71 per cent.
Flour Mills of Nigeria Plc, which recently submitted application for regulatory approval to raise N30.25 billion through a proposed rights issue, opened yesterday below the proposed offer price. Flour Mills plans to offer 1.09 billion ordinary shares of 50 kobo each to existing shareholders at N27.50 per share. The flour-miller opened yesterday at the Nigerian Stock Exchange (NSE) N26.32 per share.
Another company, May and Baker Nigeria Plc, which had announced plan to float a rights issue, opened yesterday at N1.24 per share, a price the promoters of the issue considered to be below the intrinsic value of the company.
RT Briscoe, which has struggled with huge financial leverage and sought to restructure its balance sheet through equity issue, has slumped to 55 kobo.
A management source in one of the prospective issuers said they were reconsidering their new issue plan and would likely opt for private placement on concerns that the company might not get the right value for its shares through the open offer and investors might shun the issue.
Stanbic IBTC Holdings Plc, the holding company for Stanbic IBTC Bank and other subsidiaries, which has filed for approval to raise N20.4 billion from its shareholders, is also trading below the proposed offer price. A regulatory filing indicated that Stanbic IBTC Holdings would be issuing 800 million ordinary shares of 50 kobo each to existing shareholders at N25.50 per share. The rights issue will be pre-allotted to shareholders in the book of the company on the basis of two new ordinary shares for every 25 ordinary shares. Stanbic IBTC opened yesterday at N18 per share.
Skye Bank Plc, which plans to raise about N30 billion in new equity funds in the third quarter, is trading at a low of N1.94 per share, implying that the bank might need to issue more shares to raise required equity funds. Skye Bank already has 13.88 billion ordinary shares as issued paid up capital.
Group Managing Director, Skye Bank Plc, Mr. Timothy Oguntayo, said the bank would be raising some N30 billion tier 1 capital, referring to new equity funds, in the third quarter. While Skye Bank is still finalizing the details of the equity issue, there are indications that the supplementary issue will include an element of rights issue.
Sterling Bank Plc, which had raised some N19 billion new equity funds through special placement late last year, and Wema Bank Plc, are also said to be considering further capital raising. Wema Bank Plc also plans to raise $100 million in tier II capital.
Companies that had floated new issues in recent period largely fell below their offer targets. All the companies are also trading below their offer price, putting subscribers to the issues in losses. Access Bank, which had offered about 7.63 billion ordinary shares of 50 kobo each at N6.90 to existing shareholders, recorded 79.4 per cent success rate. The bank raised N42 billion as against its offer target of N53 billion. Access Bank’s share price opened yesterday at N4.47 per share, 35.2 per cent below the January 2015 offer price.
The current rule at the NSE allows price movement on a company undertaking new issue on the principle that a free market must be allowed to discover the current price through interplay of demand and supply.
The below-the-market offer price implies that shareholders who may wish to renounce their rights would not be able to trade the renounced shares at the NSE. Given the usual appreciable discount on rights, shareholders are allowed to trade their renounced rights at the secondary market to take the premium.
The availability of the shares of the companies at the secondary market might dissuade investors that might have sought to take advantage of pre-allotted shares to increase their shareholdings.
Market analysts said the T+3 clearing schedule which delivers transaction by the third day after the transaction day also makes secondary market attractive to investors given that new issues would still have to undergo allotment process, which takes at least four weeks.
Market analysts said with the market, the success of the new issues might depend on the commitments of major shareholders, especially core investors who might take advantage of the new issues to increase their shareholdings.
Most analysts agreed that the recession has significantly undervalued several stocks, which may tend to portray fundamental valuation as costly.
Regulatory filings and investment banking data obtained by The Nation earlier this year had shown that the new issue market might be more active in the second half with not less than eight companies planning to raise funds.