Inflation, In the current financial landscape, there is a discernible trend in the capital market where several listed firms are gearing up to initiate rights issues collectively amounting to an impressive N22 billion. This resurgence of interest in rights issues has ignited a flurry of discussions among investors, with concerns emerging that a myriad of economic challenges plaguing the nation, such as rising inflation, economic uncertainty, and increasing hardships, may deter local investors from actively participating in these rights offerings. The investors’ apprehension is further exacerbated by the possibility of multinational corporations with foreign core investors entering the fray.
One of the key apprehensions expressed by investors pertains to the role of these foreign core investors in the rights issues. There is a palpable worry that these core investors may choose to take up the shares that Nigerian shareholders opt not to subscribe to, thereby amassing controlling stakes in the firms. This, in turn, has the potential to substantially alter the ownership structure of companies embarking on such exercises, inflation.
The Nigerian Exchange Limited (NGX) listing rules currently permit core investors to hold up to a maximum of 80 percent, as opposed to the standard 70 percent. This regulatory leniency means that there is a significant leeway for foreign core investors to gain substantial control within these companies. Furthermore, the devaluation of the Nigerian Naira plays a pivotal role in incentivizing multinational corporations to convert their dollar-denominated loans into equity. The timing of these rights issues coincides with a period when the stock prices of the companies involved are notably low, thus making it an attractive proposition for shareholders to acquire more shares, inflation.
While some industry operators note that economic confidence is gradually being restored thanks to new economic managers implementing policies to address fundamental issues that have bedeviled the Nigerian economy, more activities in the primary market, with an increasing number of companies raising funds, are anticipated in the first half of 2024.
However, investors hold the perspective that the timing may not be right for companies to float rights issues, especially when many local shareholders find themselves grappling with severe financial hardship stemming from the prolonged economic downturn, which has been further exacerbated by the ongoing global pandemic, inflation.
Compounding these concerns is the fact that most of the quoted companies involved in rights offerings have been consistently reporting meager profits, offering insignificant returns on investment. This has led to a growing sense of unease among shareholders who now exhibit reluctance in renewing their stakes in these firms. The implication of this tepid response is that it leaves a considerable financing gap that foreign investors, equipped with more robust currencies, can effortlessly fill, thus consolidating their grip on these companies.
A more disconcerting aspect of this scenario is the fact that shares left unclaimed by Nigerian shareholders would likely be allocated to technical partners who had initially requested additional units. This could ultimately place local investors at a disadvantage in terms of shareholding structure, further deepening their unease, inflation.
To address these financing challenges, core investors have resorted to offering dollar-denominated loans to the concerned companies and, at times, equity. However, the devaluation of the Naira can significantly impact the financial health of these companies, potentially pushing them into a loss position. The Naira’s exchange rate now hovers above N1000 to a dollar in the parallel market, despite challenges in accessing the official channel for local producers. This situation has had a detrimental effect on the bottom lines of numerous manufacturing, telecommunications, and FMCG (Fast-Moving Consumer Goods) firms, especially those with heavy exposure to foreign exchange rates.
Moses Igbrude, the President of the Independent Shareholders Association of Nigeria, has remarked on the unfortunate trajectory of the Nigerian economy, noting that the continuous devaluation of the Naira weakens investors’ ability to participate in rights offerings. It becomes imperative for companies to seek additional funding, especially those with dollar-denominated loans that require repayment or conversion into equities, inflation
Patrick Ajudua, the President of the NewDimension Shareholders Association, underscores the importance of selecting the right timing for rights issues and ensuring that the offer prices are appropriate to safeguard the interests of both the company and minority shareholders. While acknowledging the challenges faced by investors, he urges minority shareholders to actively participate in rights offerings, as failing to do so may result in the rejection of the offer, allowing the company to trade off these unclaimed shares to core investors or other interested parties, which would not be in the best interests of the minority shareholders, inflation.
In this context, several companies have expressed their intent to raise capital through rights issues. Fidelity Bank, for instance, plans to issue 3,200,000,000 units, representing one new share for every ten held, as part of its strategic growth agenda. FBN Holdings Plc is seeking approval to float a rights issue of 8,973,823,198 ordinary shares at a price of N15.50 per share, with a basis of one new ordinary share for every four ordinary shares held. VFD Group Plc aims to issue 63,342,455 ordinary shares at N197.33 per share, with a basis of one new ordinary share for every three existing ordinary shares. The proceeds from these rights offerings are expected to play a crucial role in advancing strategic objectives such as increasing shareholder value, enhancing market position, and supporting growth initiatives.
Jaiz Bank Plc also intends to raise fresh funds worth N5.4 billion through a rights issue, planning to sell 5,408,356,536 ordinary shares at N1.00 per share to existing shareholders. Ikeja Hotel Plc has announced plans to raise N3.5 billion in capital via a rights issue, with the issuance of 1,133,888,945 units, as the company explores strategic growth opportunities. Sovereign Trust Insurance Plc has declared its interest in raising 2,841,116,504 ordinary shares at a price of 50 kobo per share, on the basis of one ordinary share for every four shares held, inflation.
The dynamics at play in the Nigerian capital market reflect a delicate balance between the aspirations of companies seeking to raise capital and the concerns of local shareholders grappling with economic hardships. These intricate market intricacies underscore the importance of careful planning, timing, and pricing in rights offerings to ensure that the interests of both companies and their shareholders are adequately safeguarded.
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As these listed firms prepare to navigate the complexities of the capital market, a judicious approach is required to ensure that the rights offerings serve as a win-win opportunity, driving growth and stability in the Nigerian business landscape.
