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NPF Microfinance vs C&I Leasing: A tale of two rights offer

NPF Microfinance vs C&I Leasing: A tale of two rights offer



NPF Microfinance

The use of right issues as a means of raising additional capital is becoming the norm in the Nigerian capital market. In 2019 alone, not less than 5 companies have approached the Exchange with a quest for additional monies by way of right issues.

While this is a good development, the increased frequency of occurrence calls for good due diligence by investors and shareholders.

What are rights issues?

Rights issues are a form of corporate action where existing shareholders are given the right to buy additional shares of the company in which they already own, at a specified price. This right of “first call” derives from the doctrine of preemptive rights, which confers existing shareholders with the privilege to be given the right to buy additional shares of a company in which they already invested, before such issues can be made available to other non-existing shareholders.

Preemptive rights of shareholders

By virtue of corporate law and regulations, existing shareholders have preemptive rights over any new issues of additional shares by the company. That preemptive right entails that existing shareholders should be given the right to subscribe to new shares, of course with the right of first refusal, before such is offered to non-existing shareholders.

[READ MORE: Is this why Right Issues are suddenly popular in Nigeria?]

Why an investor would decide to take up rights Issues

One benefit of rights issues is that they are usually issued at a discount to existing shareholders, not only in compensation for being with the company but as an enticement to get them to subscribe to such shares.

A right is issued at a discount if the offer price is less than the market price of the stock in question, and it is at a premium, if the rights offer price is higher than the market price. In almost all cases, rights have been issued at a discount, the world over; however, there are a few instances where rights were issued at a premium.

NPF Micro Finance Vs C&I Leasing

A comparison of the current market price of C&I Leasing which stood at N7.3 on Sept 12th 2019, and the offer price of N6 for the rights, shows that the rights are being issued at a discount of N1.73. On the other hand, NPF Micro Finance Company plc is offering existing shareholders, the right to buy one new additional share for every one share currently held, at an offer price of N1.50 per share.

Deal book 300 x 250

C&I Leasing

As at Sept 12th 2019, the market price for NPF Micro Finance Company share stood at N1.11; this indicates that unlike the C&I Leasing rights, which offers a discount of 18%, the NPF Micro Finance rights are being offered at a premium of N0.39 or 35%.

Not only is the C&I Leasing rights presenting a better offer in terms of pricing, it also looks better also in terms of the number of shares that existing shareholders are getting. While NPF Micro Finance is making a one for one right offer, C&I Leasing is offering 4 new shares for every three held, which translates to 1.33 for every one share held.

[READ MORE: NPF Microfinance Bank to embark on public offering on NSE]

Economic Benefit Analysis

Without going into the fundamentals of the two companies which I assume that the market already did to come up with the respective market prices quoted in the market, one may be correct to say that the two rights differ in their economic benefits. By subscribing to the NPF Micro Finance rights offer, a shareholder will be paying N1.50 for something worth N1.11 in the market, which is a loss of N0.39 per share.

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On the other hand, subscribing to the C&I Leasing rights offer will entail that a shareholder will be paying N24 for 4 additional shares that are worth N29.2 in the market, which is a gain of N1.3 per share. So, to me, the C&I Leasing rights offer makes more economic sense.


What should a shareholder do

While this is not and should not be construed to be investment advice, if I were a shareholder in the two companies, I would do the following:

  • Let the NPF Micro Finance offer expire without taking advantage of it. The only downside to this is that by letting it lapse, I run the risk of having my holdings or ownership percentage in the company diluted. To manage that risk, I will buy the same amount that the rights would entitle me to, in the market at a cheaper market price. By doing that, I have maintained my percentage ownership even at a gain compared to going the rights offer route. On the other hand, I will exercise my right to buy the C&I Leasing shares at N6 which I can profitably sell at the market for more than that, possibly at N7.3.


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  • Alternatively, If I do not want to exercise the rights because I do not have the money to do so, I can borrow from the bank enough to buy the C&I Leasing shares, and pay that back after selling the new shares obtained through the rights issue while keeping the resulting profit. That cannot be said of NPF rights given the relationship between the offer price and the market price.


  • Yet another alternative that is open to me is to sell the C&I Leasing rights to someone else at the theoretical price of the right. The theoretical value of a stock right is nothing other than the market price of the stock less the subscription price of the rights divided by the number of shares it takes to receive one additional share through the rights issue. For the two rights, the theoretical prices will be ???

[READ MORE: N3.2 billion Rights Issue: C and I Leasing files SEC application]


Shareholders should do their due diligence when presented with corporate actions like right issues. In the opinion of the writer, not all right issues on offer make economic sense.

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. and (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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CBN “Naira 4 Dollar Scheme” Explained

What the CBN’s Naira 4 Dollar scheme means for your money.




In what appears to be an attempt to incentivize dollar remittances by all means possible, the Central Bank of Nigeria (CBN) released a circular to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTO), and the General Public, advising that remittances paid into a bank account will attract an additional credit alert for every USD$1 received!

Yes, you read that correctly. The CBN will facilitate a special additional credit alert of N5 for every USD$1 received. In other words,

  • if someone sends you $10,000, you get an additional special credit alert for N50,000.
  • If someone sends you $100,000, you get an additional special credit alert for N500,000.

Who is eligible?

To be eligible, the diaspora remittances need to be processed and received from one of the registered IMTOs and funds received into a Bank account operated by the DMBs. (So, if you are receiving funds via Crypto sorry you are not eligible).

Additionally, the circular says this “incentive runs from Monday 8th March 2021 to Saturday 8th May 2021″. So, if you have plans to receive dollars, you can plan accordingly.

The circular is not clear how exactly the commercial banks will know which account to pay the extra special credits into. Although, that may be a question diaspora funds recipients will need to ask their DMB accounts officers to clarify for them.

How will this be funded?

The circular notes that the “CBN shall through commercial banks, pay to recipients the N5 incentive for every USD$1”. In other words, it is the CBN funding the cost of this special extra credit.

  • One would argue that given the costs of alternative incentives to attract dollars such as the special OMO window for FPI, this may be a cheaper alternative for the CBN.
  • But we will need to see the volume of expected remittance to be certain of that. Nigeria attracts about $5billion per quarter in remittances and only trails oil in terms of foreign earnings.

Why this matter to Nigerians?

Following the collapse of US Dollar inflows into the country, the CBN initially tried to balance its current account deficits and avoid an official devaluation by tackling FOREX demand (Think ban of 41 items, etc).

Finally, this short-term Naira-4-Dollar scheme will not be called an official Naira Devaluation. But a question is what do we call the new short-term price of N412.50 + N5.00? Maybe we can call it Naira Modulation.


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Nigerian Breweries leveraging, but stacking cash through rising input costs

The marathon continues for Nigerian Breweries with its 2020 financials.



Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.

Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.

Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.

READ: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG

2020 financials: A tale of higher costs & larger debts

2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.

While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.

READ: Flour Mills and its diverse challenges

The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.

In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.

READ: Manufacturing sector in Nigeria and the reality of a “new normal”

It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.

But what’s it using all the cash for?

Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.

Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.

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