The Nigerian equities market has remained a source of funding for quoted companies despite its bearish trend since the beginning of the year, investigation has revealed.
It was gathered that companies have so far raised over N90 billion from the market through rights issue, while others are preparing to source for over N10 billion fresh capital. Weak demand for stocks has made the Nigerian Stock Exchange (NSE) All-Share Index (ASI), which is the major gauge for the market, to lose 13 per cent as at Tuesday. However, while the secondary market is witnessing negative sentiments, the primary market, where companies raise fresh funds, has provided over N90 billion to firms.
Lafarge Africa Plc accounted for the highest amount of N89.2 billion, which was raised early this year. Fidson Healthcare Plc sourced N3 billion, while Sovereign Trust Insurance Plc raised N2.085 billion from the market. WAPIC Insurance Plc will soon raise N5.577 billion just as C & I Leasing Plc and Redstar Express Plc are to raise N3.234 billion and N1.326 billion respectively. More companies, especially insurance firms that are raising funds to comply with the new capital requirement stipulated by National Insurance Commission (NAICOM), are expected in the market. Commenting on the successful raising of funds through right issue from existing shareholders, market operators said it was the best option for now since the initial public offering (IPO) market, where companies sell shares to new investors to raise money, has remained dormant.
They added that rights issues are still thriving because the shares are issued to existing shareholders, who might not want to lose their stakes to other investors. The Chief Executive Officer, Network Capital Limited, a dealing member firm of the NSE, Mr. Oluropo Dada, told reporters that a bear run might not adversely affect the success of a rights issue because shares are issued to the existing shareholders based on the existing shareholding ratio, who had over the years, appreciated the long term stability and viability of the issuer.
“An issuer of rights share concentrates its marketing efforts on the majority shareholders/ strategic investors, who will probably take up their shares to maintain status quo in addition to their profitability objective. Shares are, at times, held for political reasons and failure to take up your rights means the issuer can offer it to other shareholders, especially where the rights are tradable. Finally, rights issue is a benefit to the shareholders because the shares, in most cases, are issued at a discount, that is, at a price below the market price,” Dada said.
Also speaking on factors driving the boom for right issues, the Managing Director/CEO, High Cap Securities Limited, David Adonri, said with the economy recovering, confidence is being restored in the capital market. He noted that issuers’ confidence is equally increasing, hence an uptick in the primary market despite the bear run in the secondary market. Another stockbroker and Managing Director/Chief Executive, APT Securities and Funds Limited, Mr. Kasimu Kurfi, identified the influence of foreign core investors in some multinational companies as one of the factors boosting rights issues.
He said companies such as Guinness Nigeria Plc and Unilever Nigeria Plc, which raised funds year before last, had core investors who took up their rights, adding that that trend is still on. According to him, this confidence of core investors in the Nigerian economy is reflected in the rights issue of Lafarge Africa Plc because the core investor took up their rights, hence the success of that offer.