Despite Economic Challenges, Banks, Others Raise N2.6tn from NGX

Kayode Tokede

On the back of business expansion and drive to meet the Central Bank of Nigeria (CBN) minimum capital requirement, a total of 12 companies listed on the Nigerian Exchange Limited (NGX), raised an estimated N2.6 trillion fresh capital from investing public between January and August 2024. 

These 12 companies comprise of five financial institutions, two manufacturing companies, one Fast Moving Consumer Goods (FMCG) firm, among others.

According to an investigation by THISDAY, Nigerian Breweries Plc, and International Breweries Plc have raised the highest amount, followed by GTCO.

While Nigerian Breweries Plc is in the market to N599.1 billion, International Breweries has raised N588.28billion fresh capital from investing public. 

Nigerian Breweries in August 2024 got approval of Rights Issue of 22,607,491,232 ordinary shares of 50 Kobo each at N26.50 per share on the basis of 11 new ordinary shares for every existing 5 ordinary shares held as at the close of business on Friday, July 12, 2024.

The Issue is part of Nigerian Breweries’ business recovery plan to strengthen the company’s capital base by deleveraging its balance sheet, eliminating certain foreign exchange-related exposures and reducing bank borrowings, thereby giving the Company greater financial flexibility to promote business growth and continuity.

Nigerian Breweries has been operating in a position of negative working capital since 2020. The company posted a negative working capital of N102.3 billion at the end of FY 2020. It declined to N152.4 billion in 2021, stood at N252.3 billion in 2022 and N356.9 billion in 2023.

At the end of half year ended June 2024, Nigerian Breweries had short-term and long-term obligations of about N588.2 billion, marking a net increase of N246.6 billion from the end of 2023. A review of the company’s loans and borrowings shows its obligations are to Nigerian banks, the Bank of Industry, and the parent company, Heineken N.V Group.

The Managing Director, Nigerian Breweries, Mr. Hans Essadi, had explained that the Issue represents an opportunity for shareholders to support the company’s strategic vision and participate in the next phase of its growth.

Essaadi further disclosed that the proceeds of the Issue will be channeled towards payment of its foreign and local currency denominated obligations, thereby eliminating foreign exchange risk and revaluation losses and enhancing long term profitability and sustainable value creation for its shareholders.

For International Breweries, the N588 billion rights issue programme was 87.75 per cent oversubscribed, with 141.43 billion shares taken up by the company’s shareholders. It amounted to a capital raise of N516. 2 billion for the company, which was used to offset the company’s current liabilities.

Further investigation by THISDAY revealed that out of the N2.6 trillion raised in the period under review, Guaranty Trust Holding Company Plc, Zenith Bank Plc, FCMB Group Plc, Fidelity Bank Plc and Jaiz Bank Plc contributed about 35.75 per cent or N937.97 billion amid CBN’s latest policy in the banking sector. 

In 2023, the governor of the CBN. Mr. Olayemi Cardoso had suggested the possibility of raising the minimum capital requirement for banks, despite the sector’s relative stability in recent years.

He noted that the proposed increase is based on the observation that many banks lack sufficient capital to back an economy aiming for a Gross Domestic Product (GDP) of $1 trillion, as targeted by the Federal Government.

Recall that on March 28, 2024, the CBN revised the minimum capital requirements for Banks.

In the new dispensation, commercial banks are facing minimum capital thresholds of N500 billion for international authorisation and N200 billion for national authorisation.

In contrast, those with regional authorisation are expected to achieve a N50 billion capital floor.

Similarly, non-interest banks with national and regional authorisations will need to increase their capital to N20 billion and N10 billion, respectively.

The directive, which was contained in a CBN circular emphasised that all banks were required to meet the minimum capital requirement within 24 months commencing from April 1, 2024, terminating on March 31, 2026.

To enable the banks to meet the minimum capital requirements, the CBN urged banks to consider injecting fresh equity capital through private placements, rights issues, and/or offers for subscription; Mergers and Acquisitions (M&As); and/or upgrades or downgrade of license authorisation.

Nigerian banks have accessed the capital market to raise fresh capital via public offer and right issue. However, the success of these capital raising exercises are yet to be announced to the investing public.

In the period under review, GTCO raised N400.5 billion as it got approval and listing of its offer for subscription of 9,000,000,000 ordinary shares of 50 kobo each at N44.50 per share.

NGX approved Access Holdings N351.01 billion fresh capital, when Rights Issue of 17,772,612,811 ordinary shares of 50 kobo each at N19.75 per share on the basis of one (1) new ordinary share for every existing two (2) ordinary shares held as at the close of business on Friday, June 07, 2024.

Other notable fresh capital injection in the banking sector include: Zenith Bank’s N289.38 billion public offer and rights issue; Fidelity Bank’s N127.10 billion public offer and rights issue; FCMB Group’s N110.94 billion and Jaiz Bank’s N10.05 billion private placement.

Jaiz Bank’s Chairman, Mohammed Bintube, had hinted that the proceeds of the capital raising exercise would be deployed to improve service delivery on its various platforms to enable the Bank achieve its five-year strategic objectives.

He further said, “the Bank chose this route to sustain its growth trajectory and also to ensure it remains well capitalised in line with its capital management strategy.” 

The Chairman said, “qualified investors should take advantage of this opportunity to invest as the Bank seeks to expand to other financial services via a Financial Holding Company structure subject to regulatory approval in the future.”

He also said an opportunity would be provided to existing shareholders by way of Rights Issue to invest additional capital in the Bank soon.

In his reaction, Investment Banker and Stockbroker, Mr. Tajudeen Olayinka stated that it is necessary for listed companies to raise fresh capital amid present macro economic challenges.

He stated that reforms in the foreign exchange market, among others, have weakened listed companies’ balance sheets that required urgent fresh capital to stay afloat and expand business frontline.

He noted that the Nigerian capital market has the potential to assist companies in the quest to fresh capital exercise, stressing on its robust liquidity.

The Vice President, Highcap Securities, Mr.  David Adnori added that companies raising fresh capital is on the backdrop of double-digit inflation, reforms in the foreign exchange market, among other factors. 

He added that raising fresh capital from the Nigerian capital market through public offer or rights issues reduces the cost of borrowing and expands   liquidity in the stock market. 

Recently, the Group Managing Director of NGX Group, Temi Popoola, emphasised the market’s readiness for this significant undertaking: “The capital market has historically been a catalyst for transformative change during pivotal government interventions. This central bank-led recapitalization presents a unique opportunity to make a real, lasting impact.” NGX Group’s approach aims to generate substantial liquidity, with projections indicating that banks could raise approximately N3 trillion over the next two years. This capital influx has the potential to revitalize the market, providing an avenue for foreign capital to re-enter.”

He stressed that NGX Group is working in tandem with SEC to ensure the initiative’s success.