FBN Holdings Plc Launches Rights Issue to Strengthen Capital and Drive Growth

FBN Holdings Plc (FBNH), a prominent Nigerian financial institution, has initiated a rights issue for 5,982,548,799 ordinary shares priced at N25.00 each. This initiative aims to raise N149.56 billion and is designed to meet the Central Bank of Nigeria’s capital requirements. Beyond regulatory compliance, the funds are expected to enhance liquidity, improve financial stability, and support sustained growth for First Bank of Nigeria Limited, FBNH’s flagship subsidiary, thereby strengthening its competitiveness in the Nigerian market. 

The offering, which allows shareholders to purchase one new ordinary share for every six shares held as of the qualifying date of October 18, 2024, has been positively received. On the first day of the rights issue, November 4, FBNH’s share price rose to N26.80, a 7.6% increase over the issue price, and further climbed to 9.6% above the issue price by November 18, 2024. The five-year average share price of N14.59, last year’s closing price of N23.55, and this year’s average price of N25.75 indicate significant growth for FBN Holdings.

For shareholders, the focus is on understanding the strategic benefits of participating in the rights issue and how the additional funds will enhance the bank’s financial stability and growth prospects. FBNH has laid out a strategic plan for the N149.56 billion proceeds, prioritizing the fortification of its financial health and the pursuit of growth opportunities in Nigeria’s banking sector.

A substantial portion of the funds, N103.12 billion (68.95%), will be allocated to improving First Bank’s Capital Adequacy Ratio (CAR), with N77.34 billion for corporate lending and N25.78 billion for retail. FBNH’s CAR stood at 17.75% in the first half of 2024, and the new capital will serve as a buffer against financial shocks and ensure compliance with regulatory requirements, which is especially crucial in a high-risk environment.

Additionally, a significant allocation of the proceeds will be dedicated to expanding lending activities, which is expected to drive profitability through increased interest income. In 2023, loans and advances surged by 72% year-on-year to N8.61 trillion, and by September 2024, this figure reached N12.73 trillion. This expanded lending capacity contributed to a 165% rise in interest income in the first nine months of 2024, totaling N1.633 trillion, with loans and advances accounting for 67% of this income. 

However, the bank must manage credit risk effectively, as the current economic environment poses heightened risks. The cost of risk rose by 35% to 2.70% in the first nine months of 2024, emphasizing the need for cautious risk management to protect shareholder value. To mitigate over-reliance on the Nigerian economy, N29.46 billion (19.7% of the rights issue proceeds) is allocated to expanding international operations, which can diversify revenue and reduce exposure to domestic economic volatility.

The rights issue presents existing shareholders with an opportunity to acquire shares at a discounted price of N25, below the year’s average of N25.75 and significantly less than the 52-week high of N43.95. This pricing offers a cost-effective entry point for potential unrealized gains.

With the issuance of new shares, FBNH’s total share count will rise to 41,877,841,591, likely impacting short-term share price as the market adjusts. However, if the bank maintains its growth trajectory, this expanded equity base could push its market valuation beyond N1 trillion. The success largely hinges on how effectively the rights issue proceeds are utilized, particularly in expanding lending and diversifying revenue streams.

Analysts project a decline in earnings per share (EPS) from N16.65 to N15.31 by December 2024 due to short-term dilution. However, with a 126% year-on-year increase in profit after tax in the first nine months of 2024, reaching N533.877 billion, FBNH shows potential to offset this dilution. The book value per share increased to N72.3 in September 2024 from N38.3 in September 2023, indicating significant enhancement of shareholder equity.

In the long term, the proceeds from the rights issue are expected to drive sustained profitability and market leadership, particularly through expanded lending capacity, international growth, and improved digital infrastructure. While the increased cost of risk poses challenges, shareholders participating in the rights issue stand to benefit from both immediate value opportunities and the bank’s strengthened market position, assuming effective management of credit risk and profitability.