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That Union Bank’s N301 billion audacious offer: Is the market ready?

Posted by By EMEKA OKOROANYANWU on 2008/08/11 | Views: 2001 |

That Union Bank’s N301 billion audacious offer: Is the market ready?


When First Bank Plc last year announced its plans to access the capital market to raise N100 billion for its activities, many considered the offer too ambitious and unattainable.

When First Bank Plc last year announced its plans to access the capital market to raise N100 billion for its activities, many considered the offer too ambitious and unattainable.

But basking confidently in its enviable pedigree and track record, the bank succeeded, for the first time in the history of the capital market in Nigeria, to raise over N500 billion. Thus, forcing many pessimists to swallow their words.

Zenith Bank Plc was to follow later, raising the bar with an offer of N130 billion which was quickly swallowed by the market. This was in spite of apprehension and fears by market watchers on the ability of investors, considered by many at that time, to be two fatigued, to snap up the offer.

As if the big banks in Nigeria are in a strong competition to chalk up a boisterous capital base which gives them an edge in financing large ticket transactions, Union Bank Nigeria Plc last week announced a very audacious offer of N301 billion considered the largest in the history of the Nigerian capital market. This offer is coming on the heels of a depressing capital market, which has seen investors losing their investments to a strangulating bearish market.

In announcing the offer, Union Bank’s Group Managing director, Mr. Bartholomew Ebong explained that the bank was coming to the Capital Market to raise the N301 billion needed to prepare the bank for the challenges of the post consolidation challenges.
Ebong said the jumbo offer which would be a combination of public offer for subscription and rights issue was intended to position the bank strongly for growth and to handle more large ticket transactions like the Independent Power Projects (IPP), refineries and downstream oil related activities in the country.

He said that the board and management of the bank intend to use the proposed offer to achieve the dream of making the bank one of the largest financial institutions in the country and by extension achieve the country’s vision 2020 dream.
The offer, he said, would empower the bank to implement its mandate of doing bigger businesses locally and internationally, particularly with respect to financing infrastructure acquisition for entrepreneurs in the telecommunications, oil and gas and allied sectors.

Ebong who explained that Union Bank was coming to the market to help grow the Nigeria economy, pointed out that those who bought the bank’s shares in 2005, have since recovered their money through dividend, capital appreciation and consistent growth it has recorded over the years.
He noted that as an organization, the bank stands as one of the most liquid financial institutions in the country while all its indices pointed to consistent growth, stressing however, that the bank has capacity to absorb oversubscription when it comes.

The bank is to raise about N262.8 billion through a public offering of 7.3 billion ordinary shares of 50 kobo each at N36 per share while N38.5 billion will be raised from existing shareholders through a rights issue of 1.1 billion shares at an offer price of 35 kobo for each share. This is a discount of N6 and N7 respectively.

The Union Bank’s audacious offer has sort of rankled the market with many asking whether the bank would be able to meet its target. This follows the painful bear run the market has experienced in the past few months, which saw hitherto promising stocks crashing to their lowest levels.
Operators are, however, enthusiastic about the offer despite the downturn of activities in the market. The argument was that the over 90-year old Union Bank has strong fundamentals to carry the offer through.

They pointed to the appealing strong brand position, boisterous performance records which include a long history of profitability, dividend payout and bonus issues. The banks impressive performance over the years makes it an investors delight. Its gross earnings rose by over 109 per cent from N34. 7 billion in March 2003 to N71 billion in March 2007. Profit after tax grew by 83 per cent from N6. 6 billion to N12. 126 billion in the same period.
The bank’s total assets grew by 88 per cent from N329 billion to N619 billion. The banks dividend history has also grown since 2003, from N34 billion in 2003 to N9. 6 billion in 2007, about 182 per cent growth.

Union Banks successes in previous offers may have embolded its managers to go for the present jumbo offer.
For instance, in 2001, the bank raked in a net proceeds of N15. 350 billion from its planned 838, 950, 000 ordinary shares of 50 kobo at N18. 00 per share. The Bank recorded a 2 per cent success in that effort while in 2005; it raised N55.1 billion when its initial plan was to raise N40 billion. That offer was oversubscribed by 68 .13 per cent.

While the bank has a history of oversubscription of its shares, its dividend payment is legendry as its bonus take-away is remarkable. For instance, in 1997, the bank paid a total dividend of N437 million, translating to 55 kobo per share. That year it gave out a bonus of 1:3. In 1998, it paid out N881 million, or 70 kobo per share; 1999, N1.321 billion, about 105 kobo dividend per share. In the year 2001, the bank paid a total dividend of N1. 888 billion, translating to 150 kobo per share. In 2004, it paid out 140 kobo dividend per share while in 2006 and 2007; it paid out 100 as dividend per one share held by investors.

In all, the bank has paid out a total dividend of N38 billion to shareholders in the past ten years. In terms of capital appreciation, the bank has given out our over 6 trillion bonus shares. For instance, in the past five years, it has issued 1 for 3 for three consecutive times and 1 for 10 once; and 1 for 5 in the last two financial years.

In the area of deposits growth, Union Bank has achieved a great success. Its deposits increased to N417. 406 billion in 2007, representing 34. 62 per cent.
Theses are the fundamentals the bank is relying on to sway the investing public to buy its shares.
Stock market watchers and analysts believe that in spite of the tight grip of the bears on the market, the Union Bank offer is sure going to sail. Apart from the bank’s strong fundamentals, analysts say that many investors whose funds were returned during the First Bank offer would see the Union Bank offer as an answer to their prayers for a foothold in blue chip equity.

However, many have expressed worry over the bank’s 35/36 naira per share offer as too high going by the palpable apprehension gripping the market now.
The general agreement in market circles is that the Union Bank offer is a good one and the take is that it will be oversubscribed.
Stock market analysts have also commented on the bolders on the part of Nigerian banks to go for jumbo offers, attributing this to a clearer business climate in Nigeria occasioned by the 2006 banking sector consolidation exercise.

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Fay(Katy, Texas, US)says...

Actually translates to bravehearted.