First Bank set to absorb N250-billion from offer

•sets Nigeria’s record total applications

The bank on May 14, launched an offer to raise N100-billion through the issuance of 3,121,015,920 new shares made up of a rights issue of 1,496,762,682 units on the basis of one new ordinary share for every seven ordinary shares held by existing shareholders, and an offer for subscription of 1,624,253,238 ordinary shares of 50 kobo each at N31 and N33 a share, respectively.

Business Day learnt that the bank received a record 1.2-million applications from investors, leaving for behind the existing record of 400,000 applications in Zenith Bank’s initial public offering (IPO). It has turned out to be the most subscribed offer in Nigeria’s history in terms of cash.

Investigations show that the bank authorities may have resolved to absorb N250-billion of the total N500-billion realised from the exercise.

Business Day learnt that the value of all applications in respect of the offer totalled N500-billion indicating an oversubscription of 400 percent. Market sources also disclosed that the bank had been given the go-ahead to take up 25 percent of the oversubscribed shares as indicated in the prospectus.

It means that the bank will have to absorb N250-billion and allot shares in that proportion.

With this development, analysts say the paid-up share capital of the company which is currently 10.359-billion units is likely to double.

First Bank is not alone in the quest to push share capital above the N200-billion. Reports indicate that Union Bank plans to raise an extra N180-billion from a strategic core investor.

This bloated share capital, analysts say, may become a challenge on the banks’ earnings potential in the short term. They argue that just like the other banks that have raised capital from the market, the banks’ challenges will be more in terms of deploying capital to boost their earnings.

According to analysts, although there will be more funds at their disposal, earnings will automatically be diluted with an increasing price earning ratio.

In the case of First Bank, Abiye Karibi-White, stockbroker with Nova Securities, says the increase in share capital will definitely put pressure on the bank to meet shareholders’ expectations in terms of returns such as bonuses and dividends. "For now, we can rule out expectations of bonuses from the bank because the earnings would have been diluted by the time the shares are listed. That will also affect the share price and it means that it may not go beyond what it is now."

Kennedy Edah-Ikeh of ICMG Securities Limited contends that First Bank’s price earning ratio, which is an indication of the growth potentials, will automatically go up after the listing of the shares.

He says: "In terms of the price going up, the FBN might not be able to meet that for now because the new share capital would reduce the earnings per share to about N1.00, while the price earning ratio would also be high. Besides, it would be difficult to declare a bonus issue on this volume in the short term."

Gerald Ibe, CEO of Dakal Services, also notes that the new structure will affect earnings in the short term, adding that a lot of people who bought the shares at a premium while the offer was ongoing would have to hold on to their shares at least for now.

However, they express optimism about the future of the banks, saying that with more money at their disposal they will be able to do more business and carry on proper banking processes. This also indicates that they will be able to lend more money to their customers and businesses.

According to Karibi-White, the management of FBN as well as other banks would have to be on their toes and be more creative in terms of product development and innovative banking products that are tailored to the needs of their varied customers.

Other analysts note that FBN still has a strong public appeal and perception because of its performance in the past six years. The bank has consistently paid dividends and declared bonuses to its shareholders during the period under review.

Olawale Idowu of Hamilton Hammer & Co. Limited says the banks are already coming up with series of products for the needs of their customers. But he would like the Central Bank of Nigeria to be consistent with its regulatory functions so that the banking terrain would turn out for the better.