Stories by Festus Akpobor
IN what some analyst as a bold move designed to test the confidence of shareholders on the bank’s performance, the board of directors of Access Bank Plc announced last week the commencement of a Rights Issue offer expected to generate a gross of N52.6 billion. In this report Festus Akpobor takes a look at the issues surrounding the offer and why it is strategic for it to be successful.
Despite the unimpressive performance of the Nigerian capital market in the last three months Access Bank Plc, one of Nigeria’s top five banks approached the capital market last week with the aim of increasing its capital base through the sales of 7,627,639,636 units of ordinary shares of 50kobo each at a price of N6.90 per share.
The bank announced early in the week that it has secured the approval of the Securities and Exchange Commission (SEC) to proceed with its plans to raise N52.6 billion using the instrument of the capital market. The bank stated that the share sales are in pursuit of expansion and cash reserves increase drive.
In addition, it explained that the move is in compliance with its five-year corporate strategic plan of becoming one of the three banks in Nigeria and the world’s most respected African bank, Access Bank Plc last week took another bold step to increase its capital base.
A statement from the bank, noted that the raising of the fresh capital is in line with its five-year corporate strategy plan to be one of the top three banks in the country and the “world’s most respected African bank”. The strategy accord to it, is to be anchored on four critical pillars – capital, human capital, governance and risk management. In addition, the bank said, the offer will be more competitive and meet the funding needs of its blue chip customers that meet its credit risk criteria.
The bank according to a report made available to Champion Newspaper had initiated a five year strategic plan (2013 – 2018) following its acquisition and successful coupling with the defunct Intercontinental Bank Plc. It will be recalled that Access Bank took over Intercontinental Bank from the Central Bank of Nigeria (CBN) in 2011.
Meanwhile available details about the offer shows that it commenced on Monday January 26, 2015 and is expected to close on Wednesday, March 4, 2015. However, existing shareholders who may not be able to participate in the offer have the window of trading their Rights through their stockbroker on the floor of the Nigerian Stock Exchange (NSE) during the offering period.
Prior to the Right Issue Offering, the bank had ventured to the global market by embarking on a Tier II capital rising through the issuance of Eurobond totalling $400 million in June 2014. The project was reported to have been highly successful, thus rising expectations that the local market will do better.
Giving a detail explanation of how the expected funds will be utilized, Herbert Wigwe, Group Managing Director/Chief Executive Officer, Access Bank Plc said, the proceeds from the offer will be used to upgrade the banks’ information technology platforms to enable it provide better services, upgrade the bank’s branch networks and further improve the working environment.
He stated that, “The funds raised would provide Access Bank with additional capacity to further consolidate its leading corporate banking business as well as additional capital headroom to support our increasing market share in the SME and retail segments.”
Meanwhile, Gbenga Oyebode chairman of the board of director of the bank, had in October during the extra ordinary general meeting (EGM) held in Lagos to secure shareholders approval for the Right Issue, highlighted the rationale behind the fund raising drive.
Gbenga admitted that regulatory circumstances as well as challenging situation of the operating environment necessitated the quest for fresh funds. The move according to him is initiated to make the bank a more viable venture in the face of changing times.
Hear him, “In spite of challenging conditions in the nation’s banking sector with regulatory changes and increased competition, the bank continues to sharpen its execution skills thereby ensuring a solid platform to build on”.
Speaking on the value the bank had created in recent times, Gbenga said, “I am pleased to inform you, our esteemed shareholders, that the results of the foundation laid in 2013 are already evident as seen from our recently released half year results which showed a 7 percent growth in profit after tax to N22.6bn.”
However, the move to increase capital base is triggered the present day reality of difficult operating challenges attributed to policy initiatives from the Central Bank of Nigeria.
Adesoji Solanke, banking analyst at Renaissance Capital, is one of those who think the regulators are inducing this drive to rise fresh capital. He recently, expressed concerns over financial institutions operating in the country to remain in business without rising fresh capital.
He noted in one of his reports that most lenders in Nigeria had seen capital levels drop by 100-400 basis points to near the regulatory minimum of 16 percent under the stricter international requirements. According to him, some banks would have to lower dividends and loan growth during the year to conserve cash.
Speaking on the way out, Solanke said he expects banks to resolve to raise funds from the capital market to boost their capital base. Aside, Access Bank, the Renaissance Capital analyst said he expects First Bank, which recently raised a Eurobond, to follow with plans for extra capital as well as United Bank for Africa (UBA) and Skye Bank. However, only UBA has indicated interest to approach the capital market for now.
Earlier, rival lender Diamond Bank, had raised a 50.3 billion naira rights issue, in addition to issuing a $200 million in Eurobond in May 2014. Similarly, Stanbic IBTC Bank has also announced plans to raise N30 billion through yet to be disclosed method.
It must be noted that the task of executing the ongoing Rights Issue of Access Bank Plc is enormous. This is due to the current situation in the Nigerian capital market. The market in recent time have being facing challenges due to a number of reasons such as the impact of the global reduction of crude oil prices and declining value of the Naira to the US Dollar. In addition the political uncertain induced be the preparation for the February 2015 election has impacted negatively on the market.
Consequently, foreign portfolio investors whom had before now controlled over 60 per cent of the NSE’s transaction, are exiting the market, resulting in the untold depreciation of share prices of stocks.
The first sign of the impact of this dwindling share price is the reduction of the initial price approved for the offer. It is on record that in October when the bank held its EGM to proposed price for the offer was N8.90, but due to the current reality the price has been fixed at N6.90 per share.
Meanwhile, as at the close of market last week the stock now sell for less than N5.00 per share thus raising the question of why should an investor take the rights issue instead of purchasing same from the secondary market at a lower price.
Reasons to invest in Access Bank
Tier 1 Bank with Robust financial indicators
Enlarged resource base with strong upside potentials
Credible leadership with a clear focus on value creation for shareholders.
•Strong returns for investors –Capital appreciation & dividend payout
•Attractive market price trading at a 0.9x discount to book value
•Strong corporate governance and shareholder management practices
•Window of opportunity in rapidly expanding and consolidating banking sector, backdrop of stable economy
•Demonstrated capacity in integrating and extracting value from acquisitions
•Actively traded stock with a robust shareholder base
•Track record of strong performance; kept every promise made since 2002
The bank’s financial account for the third quarter ended September 30, 2014 showed revenue by 17.3 per cent to N181.789 billion from N155.026 billion in the corresponding period of 2013. Interest income grew by 20 per cent to N132 billion from N110 billion while fee and commission income rose by 14 per cent to N24 billion as against N21 billion in similar period of 2013.
Total assets rise to N2.075 trillion from N1.835 trillion representing 13 per cent growth while liabilities portfolio stood at N1.809 trillion from N1.590 trillion. Loans and advances to customers increased by 34 per cent to N1.056 trillion from N780 billion. Similarly customers deposit appreciated by 11 per cent to N1.479 trillion from N1.331 trillion recorded in the comparing period.