BusinessDay... the voice of business: First Bank set to absorb N250-billion from offer

First Bank set to absorb N250-billion from offer
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ABDUL IMOYO on 23 September, 2007 08:00:00
 
*sets Nigeria’s record total applicationsIndications are rife in Lagos that
First Bank of Nigeria plc (FBN) will absorb as much as half of about
N500-billion received during its recent public offer.
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.