Skye Bank recently confirmed it was planning to raise about N30 billion via a Rights Issue scheduled for this quarter. Whilst this plan has been on the cards for some months now it did arouse some ironies for us at Nairametrics. Here are the top 5 ironies
Amount its Raising equals market cap
Skye Bank is looking to raise about N30 billion in rights issue (raised about N50b in 2013). However, the market capitalisation (value) of the bank currently stands at N29billion and just N1 billion shy of what it plans to raise. It means that for Skye Bank to raise N30 billion, it probably needs to issue a one for one rights issue at the current price of N2.18 (shares down 17% year to date). This probably means there will be some action on this share price in the coming days and weeks which may fizzle out again depending on the price momentum.
Didn’t they just spend N126b on Mainstreet bank
Just last year Skye Bank spent a whopping N126b (net N103 billion) in acquiring Mainstreet Bank Plc from AMCON. At the time the deal was consummated, Skye Bank was valued at just over N32 billion. Skye Bank nevertheless has a book value of about N141 billion suggesting it may be undervalued. However, many investors doggedly believe otherwise and continue to value the stock at a huge discount to its book value. A rights issue after dolling out N126 billion seems rather odd to us.
Results
Skye Bank perhaps in anticipation of this equity raising activities intensified efforts to ensure results for the first and second quarter of this year was stellar. In Q1 it grew pre-tax profits by 81% YoY and followed that up with another 47% growth in pre-tax profits in the second quarter. This is the same bank that posted a 47% drop in profits in 2014. What exactly could have changed in the last 6 months? Is the economy any better?
Bonus
Skye Bank also this year issued a 1 for 20 Bonus issue as it shelved any plans for cash dividend. Issuing out an equivalent of 5% of its total equity just before another round of right issue suggest a disproportionate set of goals. Why bother giving out new shares as bonus issues when you will be going back to those same shareholder to raise money. Whatever impetus that move provided has surely evaporated with the price firmly rooted N2.10-2.20.
Bad Loans
Over 30% of its loans are in the upstream sector and about 13% of its non-performing loans figure of 5% are also from the oi and gas sector. The company also confirmed in its earnings calls that it had restructured some of these loans basically extending tenor. Some analyst may see this as basically deferring the evil day or a necessary evil considering the current economic situation.
Change of CFO
We also learnt Skye Bank has changed its CFO again. This will gather is the second time in recent times. For a bank to be changing the CFO just before a capital raising exercise is like substituting a striker just before the game has started. How this will affect Skye Bank is yet to be seen.
another trend this year : share prices seem to drop below rights issue prices before and after (oando , access , stanbic , diamond etc )
Skye Bank spent a whopping N126b in acquiring Mainstreet Bank Plc from AMCON. With this money collected by AMCON what is the fate of the residual owners (equity holders) of the Mainstreet Bank Plc before it was took over? Is there any explanation to this?