Forte Oil shares has been on the rise this year returning over 800% in the last one year alone. I have struggled to find out why but as The Nation Reports;
Forte Oil Plc plans to cancel six billion ordinary shares out of its 10 billion authorised shares and offset accumulated losses totaling N56 billion in a share capital reorganisation aimed at removing the last vestiges of the chequered past of the downstream marketing company. Forte Oil indicated it would be reducing its authorised share capital of N5 billion, consisting of 10 billion ordinary shares of 50 kobo each, to N2 billion, consisting of 4.0 billion ordinary shares of 50 kobo each, thereby cancelling N3 billion, which represents 6.0 billion ordinary shares of 50 kobo each.
Also, the company plans to offset accumulated losses of more than N55.98 billion residual in its reserves with the N62.29 billion balance in its share premium account to remove the deficit and clear the last impediment that had debarred the company from paying dividends from its newly resurgent profit. Shareholders of the company are expected to vote on the scheme of arrangement for the two proposals by the end of this month.
Market analysts said the prospects of resumption of dividend payment in the light of the company’s improving profitability is a major driver of the company’s meteoric share price appreciation. Forte Oil has the highest capital appreciation so far this year among the quoted companies.
What does this all mean? Forte Oil will not have been able to pay dividends because of its negative reserves as I had mentioned in one of my past reviews of the company. Therefore, by offsetting their negative reserves against their share premium they are now able to pay dividends as the reserves will now be positive therefore enabling them to pay dividends. Transcorp also deployed similar moves recently. Despite this move I still do not see any justification for the huge valuation currently being placed on the stock.
I will throw more light into the effects of cancelling negative reserves with share premium soon to help investors understand how that impacts on their shareholdings as a whole.
See full article: The Nation