NSE bubbles with new issues

…Union Bank, Unilever, Lafarge, two others seek N273.6bn fresh funds

FELIX OLOYEDE

With the recent bullish trend in the Nigerian Stock Exchange (NSE), many companies listed on the bourse are catching on the positive development to raise fresh capital through right issue.

Unilever Nigeria Plc, Lafarge, Union Bank of Nigeria Plc, United African Company of Nigeria (UACN) Plc have all indicate interest to raise fresh fund through Right Issue as The NSE’s All Share Index appreciated 13.9 percent year-to-date to 30,314.14 on June 1 from 26,616.89 on January 3 when the market opened for trading this year. Market capitalization has also risen 16.8 percent to N10.5 trillion on June 1 from N8.97 trillion on January 3.

Source: Business Hallmark

Shareholders have given Unilever Nigeria the nod to raise N63 billion through right issues and Lafarge Africa would seek its shareholders approval to would give their nods to proposed plan to raise N140 billion at its forthcoming AGM on June 7, 2017 in Lagos.

Union Bank is already wrapping up plans on its N50 billion Right Issues after its shareholders have during the bank’s 2016 AGM  given it the go-ahead to raise fresh fund. In the same vein, UACN Plc would on June 14 seek the permission of its shareholders to raise N15.4 billion through right issue. Its subsidiary, UPDC also has launched a N5.2 billion right issue.

Source: Business Hallmark

Mr Johnson Chukwu, Managing Director, Cowry Assets Management Limited explained that companies in dire need are opting for the right issue options to avoid diluting their shareholdings.

“Any attempt by quoted companies to issue fresh equities through public offer would mean they would be underselling themselves, because of the difficulties the capital market experienced in the past couple of years,” explicated.

According to him, the shareholding structure of the companies attempting to raise fresh capital and the industries they belong to would determine their success. Companies where institutional investors hold bulk of the equities are bound to succeed with their right issues.

“If the companies belong to a closed sector where investors are not interested in immediate reward, but are hopeful of reasonable gain in the future, such investors would be glad to pick up their rights. If the company belongs to a matured industry, but has a good cash dividend policy, the investors would look at its dividend history and they want to pick up their rights. They have to look at the economic situation of existing shareholders, so, these are the factors that would determine if the right issues would be successful or not,” the Cowry Assets boss emphasized.

Mr Robert Omotunde, analyst at Afrinvest West Africa Limited explained that the positive sentiment which the equity market is currently enjoying would spur these Right Issues to succeed.

Mr Ayodele Akinwunmi, an analyst with Focus Bank told BusinessHallmark in a telephone chat in Lagos said that investors with long-term horizon would go for Lafarge Africa’s Right Issues, because there are a lot of opportunities in the company in the long-term, though it faces a lot of competition from Dangote Cement, which is the market leader in the country’s cement industry.

“Unilever is a tricky one,” the Focus Bank analyst said. The claimed success of the conglomerate’s Right Issues is dependent on the country’s economic recovery.

The Chief Financial Officer, Union Bank, Mrs Oyinkan Adewale explained in a video message posted on Youtube that the right issue would be used to fund the bank’s growth.

“We would lend part of the fund to selected group sectors of the economy,” she said. According to her, the bank’s lending process would be very strict, ensuring that it meet risk acceptance criteria.

Union Bank which is planning to raise N50 billion, is battling higher Non-performing loan ratio, which stood at 7.65 percent in Q1 2017 and liquidity ratio which is just 7 percent higher than the 30 percent regulatory minimum. Although the lender’s gross earnings grew 24 percent to N33.8 billion during this period, its PAT declined 4 percent to N4.5 billion.

Atlas Mara Limited and Union Global Partners Limited alone own 85.89 percent of UBN total shares. Three institutional investors: Unilever Overseas Holdings B.V. Holland, Unilever Overseas Holdings BV and Stanbic Nominees Nigeria Ltd own 50.04 percent, 10.02 percent and 10.49 percent respectively of the conglomerate’s total equities.

The Unilever’s Corporate Affairs Director, Mrs ‘Soromidayo George told our correspondent in an email message that the company decided to raise fresh capital in order to pay down some of its trade liabilities and reduce “outstanding finance obligations in order to reduce finance costs which have increased significantly in recent times, thereby reducing profit and loss risk and reshaping the Company’s balance sheet.”

The Right Issue would be “Providing additional US$ liquidity for Unilever Nigeria, through the US$ proceeds expected from foreign shareholders participating in the Rights Issue and insulate the business from exchange losses as a result of outstanding Forex debts.”

Unilever is currently facing working capital challenge, which stands at –N12 billion at the end of 2016, improved on it profit after tax (PAT) by a whopping 157.6 percent to N3.1 billion in 2016 despite the tough operating environment. Lafarge is in the same canoe with Unilever in terms working capital challenge as it has working capital deficit of –N77.6 billion.

Source: Business Hallmark

Lafarge explained in a statement sent to the NSE recently that the proposed right issue will strengthen the company’s balance sheet and capital structure by reducing foreign currency exposure and optimizing the Lafarge Africa organization, adding it would also aid its expansion drive.

“Unicem, a 100% owned subsidiary of the Company, has FX loan of approximately USD600m which was incurred for the completion of line 1 (2.5mtpa) and the commissioning of line 2 (2.5mtpa).

“Between Q4 2016 and April 2017 50% of the outstanding loan was hedged using the Non Deliverable Futures window of the Central Bank of Nigeria,” Lafarge Africa further enunciated.

UACN plans to deploy the fresh fund to support its subsidiary, which is in dire need of fresh capital to pursue additional investments. The company noted that The company explained that its subsidiary, UPDC has launched a N5.2 billion right issue to enable it realized certain assets, which had
earlier been hampered by market weakness and challenges in the operating environment.
“It is important that the group is resourced to support the subsidiaries at this critical time,” the further stated.

Experts believed CBN’s aggressive injection of foreign exchange into the economy and the opening of investors’ and exporters’ forex window, which has helped ease liquidity challenge in the FX market, was responsible for the current rally in the bourse. This has also helped boost the confidence of foreign portfolio investors, who are beginning to return to the Nigerian equity market.