If you are a keen observer of affairs in the capital markets you must have noticed the flurry of right issues taking place. Flour Mills, Union Bank, Niger Insurance, Crusader Insurance, Neimeth, Sovereign Trust Insurance have either decided to commence or embarked on a rights issue in the last year or so. Why is that so? In Nigeria most share offers that involve right issues usually take the shape of a hybrid of a rights issue or an issue to new and prospective investors. That way existing shareholders can cash in value or increase their equity stake whist attracting fresh funds from new investors. In cases where Right Issues are made exclusively, it was done to ensure that dilutions that usually occur following the injection of funds from new investors are avoided. But is that an explanation for the flurry of right issues taking place? According to some the answer is NO.
The current plethora of right issues we have now are simply the only way quoted companies can raise equity capital at the moment. There is an evident apathy for stocks in Nigeria as investors just do not have the appetite to buy shares even as most stocks are trading at historical lows. No one is interested in buying shares except the owners of the company selling the shares. Meaning if a company wishes to raise equity to finance capital projects, working capital or even to shore up balance sheets, it is better off asking its shareholders to cough out that money. Whilst it is certain most of the shareholders will not buy, it is expected that the core investors, those owning 10- 20 -40 -50 percent of the shares will definitely take up their rights and drop the money. Its basically using what you have to get what you want. But will that work for Private Companies?? I guess not. But for Publicly quoted companies it is just the beginning. Expect more in the coming months as companies rush to shore up their capital.