Business
Race for N500bn: Zenith Bank hybrid offerings face over-subscription
– Profit to hit trillion in 2024
Zenith Bank Plc hybrid offerings to the investing public face the possibility of oversubscription, as investors scramble for a stake in the highly profitable bank, which has remained the leader in dividend payout to shareholders. It is expected that both existing and prospective investors would want to boost their positions to tap into the cash cow of the banking sector.
The bank is in the market with a combination of a Rights Issue and a Public Offer to raise N290bn fresh capital in line with the recent directive by Central Bank of Nigeria, CBN, mandating deposit Money Banks to shore up their capital base from N25 billion to a staggering N500 billion.
However, the tier-1 lender needs only N230bn – the least capital to raise among its peers – to meet the fresh recapitalisation mandate as it is already at N270.7 billion.
The offer, which opened on Thursday, August 1, 2024, to close on Monday, September 9, 2024, comprises a rights issue offering 5,232,748,964 ordinary shares of 50 Kobo each at N36.00 per share, and a public offer of 2,767,251,036 ordinary shares of 50 kobo each at N36.50 per share, Zenith Bank said in a statement.
It noted that the rights issue allowed existing shareholders to purchase additional shares in proportion to their current holdings based on one new ordinary share for every six existing ordinary shares held as of Wednesday, July 24, 2024. On the other hand, the public offer is open to the general public and aimed at attracting new investors.
According to the CBN recapitalisation circular released in late March, commercial banks with international authorisation are to increase their capital base to N500bn and national banks to N200bn while those with regional authorisation are expected to achieve an N50bn capital floor. Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20bn and N10bn, respectively.
The banks are required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, and terminating on March 31, 2026, using the options of raising additional capital, mergers and acquisitions and license change.
Only the share capital and share premium items on the Shareholder Fund portion of the balance sheet will be recognized in this particular round of recapitalization, the CBN circular had also stated.
Unwavering optimism
Dr. Adaora Umeoji, the Group Managing Director/Chief Executive Officer, is optimistic that given Zenith Bank’s track record of profitability and consistency in creating wealth for shareholders, the capital raise will be a resounding success.
Speaking at the Zenith Bank Rights Issue/Public Offer Signing Ceremony held on July 29, 2024, in Lagos, Umeoji assured prospective investors that Zenith Bank will maintain its leadership in dividend payout in the years ahead and encouraged them to invest in the bank for guaranteed value.
“Today, we signed the transaction documents with respect to Zenith Bank’s N290bn rights issue and public offer. This is slightly above the N230bn required for us to meet the CBN’s minimum recapitalisation requirement.
“We are extremely pleased with the level of enthusiasm we have already seen from our existing shareholders for the Rights Issue. Beyond existing shareholders, incorporating a public offer is crucial to ensure that our customers, who are not yet shareholders, can have the opportunity to join in the ownership of this premium brand.
“In terms of tier-1 capital, Zenith Bank has been adjudged by The Banker, and Financial Times to be number one in Nigeria and the only Nigerian Bank in the top 600 banks globally. Over the years, we have consistently rewarded our esteemed shareholders. Specifically, in the last five years, we have maintained the record as the highest dividend-paying bank in Nigeria. In 2023, we set a record as the only Nigerian bank to pay a dividend of N4 per share.”
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She added that the proceeds from the capital raise will be channeled towards expanding banking operations across Africa and internationally, investing in technology infrastructure, and supporting working capital on an ongoing basis.
The Chief Executive of Stanbic IBTC Capital Limited, Mr. Oladele Sotubo, commended the management of Zenith Bank for their commitment to the transaction, which provides an opportunity for existing shareholders to consolidate their position and welcomes new investors to join the journey towards the future of Zenith Bank. He expressed gratitude for the opportunity given to Stanbic IBTC Capital Limited to lead and guide the execution of the transactions.
“A combined offer that is both a Rights Issue and a Public Offer confirms Zenith Bank’s position as a pacesetter and a role model, which will undoubtedly spur more transactions in the capital market,” Sotubo said.
Other issuing houses involved in the arrangement include Quantum Zenith Capital & Investments Limited, CardinalStone Partners Limited, Meristem Capital Limited, Chapel Hill Denham Advisory Limited, Coronation Merchant Bank Limited and Vetiva Advisory Services Limited.
Crossing the N1trn mark
Umeoji had, while addressing capital market stakeholders, investors, and analysts at the Zenith Bank’s Capital Markets Day earlier, expressed confidence that given the trend of the bank’s performance and having achieved a profit before tax of N796 billion in 2023 and N320 billion in the first quarter of 2024, the bank is on track to deliver over N1 trillion in profit before tax in 2024.
She also disclosed some of the bank’s future plans, which include driving financial inclusion, expanding corporate and retail banking through technology and other state-of-the-art digital platforms, and establishing a fintech subsidiary, ZenPay, to drive profitability. The bank, she said, also intends to expand to France and other Francophone African countries.
Also speaking, the Chief Financial Officer/General Manager, Dr. Mukhtar Adam, pointed out that in the last five years, the bank’s Compound Annual Growth Rate (CAGR) in revenue has grown by over 27 per cent.
“This continues to grow year-on-year. Within this period, at some point, Nigeria went into recession, but we forged ahead, worked very hard, and continued to deliver growth”, he said.
“Within the last five years, our profit before tax has also grown cumulatively by about 28 per cent. This is a market where, at some point, government instruments – treasury bills – were paying one per cent, two per cent, three per cent. But we forged ahead to grow the numbers and provide stable returns of at least 28 per cent.”
Impressive scorecard
According to its audited results for the year ended December 31, 2023, Zenith Bank achieved a remarkable triple-digit growth of 125 per cent in gross earnings, from N945.6 billion reported in 2022 to N2.132 trillion in 2023.
The impressive growth in gross earnings resulted in a year-on-year increase of 180 per cent in profit before tax (PBT), from N284.7 billion in 2022 to N796 billion in 2023, while profit after tax (PAT) also recorded triple-digit growth of 202 per cent, from N223.9 billion to N676.9 billion for the period ended December 31, 2023.
The increase in gross earnings was primarily due to growth in interest and non-interest income. Specifically, its interest income increased by 112 per cent, from N540 billion in 2022 to N1.1 trillion in 2023, while non-interest income grew by 141 per cent, from N381 billion to N918.9 billion in the same period.
The rise in interest income was attributed to the growth in the size of risk assets and their effective repricing, alongside the increase in yield of other interest-bearing instruments over the year. Growth in non-interest income was driven by significant trading gains and an increase in gains from the revaluation of foreign currencies.
First quarter results for 2024 shows that the bank could surpass the 2023 performance in the current year. Gross earnings jumped by 189 per cent from N270 billion in the first quarter of 2023 to N781 billion in the first quarter of 2024. Profit before tax tripled by 267.8 per cent to N320 billion in March 2024 as against N87 billion recorded in March 2023. After taxes, net profit leapt by 291 per cent from N66 billion to N258 billion. Earnings per share rose simultaneously from N2.10 to N8.22.
A track record of excellent performance has continued to earn the brand numerous awards, including being recognised as the Number One Bank in Nigeria by Tier-1 Capital for the 14th consecutive year in the 2023 Top 1000 World Banks Ranking, published by The Banker Magazine; and Most Sustainable Bank, Nigeria, in the International Banker 2024 Banking Awards, among several others.
