Rights issues across sectors surge as market stabilises

Nigerian firms have announced N150 billion in new equity capital raising this year, as the rising stock market and expanding economy push companies to seek cheap capital for expansion.

Higher stock valuations make it easier for lenders to raise funds through common equity, which dilutes existing shareholdings.

Since the start of the year, about 10 companies cutting across the insurance, banking, oil and gas, agriculture, construction and healthcare sectors have either floated a rights issue or initiated plans to float one.

These include Sovereign Trust Insurance plc with N1.1 billion, Diamond Bank plc (N50.37 billion), Oando plc (N50 billion), Staco Insurance plc (N3 billion), Unity Bank plc (N39.2 billion), Presco plc (N3.5 billion), May & Baker (N3 billion), Julius Berger (N7.5 billion) and Evans Medical (1.22 billion).

Rights issue implies a significant financial commitment by core investors as well as market stability within an economy.

Nigeria’s economy may grow by 6.2 percent in 2014, accelerating from a 5.5 percent expansion last year, the National Bureau of Statistics (NBS) said last month.

Nigeria’s stock market return was the best in Africa in 2013, rising 47 percent, an extension of the solid run seen in 2012.  

The equity market recently recorded a N674-billion growth in market capitalisation in the seven-month period ending in July 2014. With the primary markets showing signs of rebound, companies are falling back on shareholders.

“The Nigerian Stock Exchange (NSE) has witnessed an increased attempt by companies to raise fresh funds through rights issues. This is an obvious confirmation that the primary segment of the Nigerian capital market has begun to pick up,” said Abimbola Babalola, head, market surveillance department, NSE, at a recent event in Lagos, adding that the increment witnessed today in the number of rights issues being floated on the NSE was a clear indication that investors were getting quite confident in the market.

Companies can turn to rights issues to raise money when they need to bridge equity financing gaps and also reduce dependency on short-term loans.

Oando’s equity capital raising was done in an attempt to cut down on debt and meet the company’s immediate working capital needs.

Diamond Bank, on the other hand, disclosed that the net proceeds of the lenders’ rights issue would be applied towards the development of the bank’s IT infrastructure, working capital support and expansion of business locations.

The ability of firms to raise money also denotes a deeper capital market, with the NSE planning to increase its $86 billion market capitalisation twelve-fold by 2016 and position itself as a regional hub for finance.

“We intend to develop a larger footprint on the African continent and, ultimately, target emerging market status,” said Oscar Onyema, NSE’s chief executive officer.

DANIEL OJABO