Nigerian companies are increasingly raising equity capital via rights issues, public placements and Initial Public Offerings (IPO) on the back of the increase in market confidence, as they seek to expand their businesses or shore up balance sheets.
The Nigerian Stock Exchange All-Share Index (ASI) has advanced 21 percent this year, after rising by 34 percent in 2012, helping to lift the value of shares and making it easier for listed companies to raise capital with minimal dilution to existing shareholders.
Some of the signature capital raising deals announced in the first quarter of 2013, include Oando’s N54.6 billion rights issue, UPDC N30 billion IPO for its real estate investment trust (REIT), Wapic Insurance N3.5 billion rights issue and the Transnational Corporation’s announcement of its plan to raise N15 billion for the expansion of its business activities.
The emerging opportunities in the real sector of the Nigerian economy, such as the power, real estate, manufacturing and oil and gas sector, may also be influencing banks to raise capital to expand their loan books.
Diamond Bank, a mid- tier Nigeria lender, is planning to raise as much as N118.5 billion ($750 million) in shares or bonds this
year, to finance oil, power and other infrastructure projects, and raise its capital adequacy ratio, to between 20 percent and 25 percent, according to Chief Financial Officer, Abdulrahman Yinusa.
Sterling Bank has announced plans to raise N31.6 billion ($200m) while Wema Bank will raise N35 billion through a rights issue.
The increase in capital issuance is coming from almost negligible
levels in the same period of 2012.
Analysts say asset re-allocation into equities by institutional investors and pension funds, with N3 trillion ($19 billion) of assets , may be driving demand for new rights issues, while the rally in equities fuels issuance on the supply side.
“Local pension funds seem to be shifting into equities, and global investors are interested in Nigerian assets,” Charles Robertson, economist and head of macro strategy at Renaissance Capital, said in a research note released in February.
Going forward, the prospects for increased issuance activity on the capital markets seem bullish, underpinned by expectations for a continued rally in equities, declining interest rates domestically and positive global liquidity conditions, say analysts.
“While more weakness, or at least a period of consolidation may well be in the pipeline in the short term, we are still bullish on the medium-to-long term outlook for the bourse,” Samir Gadio, an emerging markets strategists said, in a note released last month.