Analysis: Is UBA N4 Rights Issue Really Trading At a Discount?

“Shareholders Get UBA’s Rights Issue at 7.4% Discount”

By the way that was a headline from a Thisday article suggesting the current UBA Rights Issue which opened at N4 is being sold at a discount. But is it?

First of all we need to understand why it is important for a stock to trade at a premium to its Rights Issue Price. When a stock trades higher than its rights issue price, it gives investors a potential upside and an incentive to subscribe to their rights since it is cheaper than buying at the open market (NSE). For example, instead of buying UBA at N4.5 on the floor, you just take up your rights and buy at N4 at the Rights Issue price, a discount of at least 12.5%. Also, the company will want you to buy their Rights Issue because when you do that money comes into the company accounts as its cash. However, when you buy the shares on the floor of the NSE the money goes to the seller and not the company.

For UBA Rights Issue to be selling at a discount then the current share price must continue to remain above N4 from now till the end of the offer. Is it possible for UBA to continue to trade at a discount to rights issue price? Well, the answer is Yes and No. It closed Monday January 5th at about N4.32 representing an 8% discount. Despite this higher close, it is also possible that the stock close lower than N4 in the coming days. In fact, UBA was trading at under N4 between the 14th and 19th of December when the market was on a bearish run and was as low as N3.11 at some point. Therefore, if UBA continues to trade at higher than N4 then YES it will trade at discount to rights issue price. But if it trades at price (including fees) lower than the rights issue price of N4 then it is not trading at a discount to rights issue price.

So as an investor, you should focus more on the market price of UBA and not just the Rights Issue Price. If you can buy UBA at a price (including fees) lower than N4 then it perhaps pays you more to buy on the floor of the NSE. However, if UBA continues to sell for higher than N4 then your best bet is to buy at the Rights Issue price if your qualify for it. What you shouldn’t absolutely do is get fooled by Headline such as the Thisday article.