Boosting bottomline, efficiency via shareholders’ rights
When a company is planning the expansion of its operations, it may require a huge amount of capital. However, instead of opting for debt, they may like to go for equity to avoid fixed payments of interest.
To raise equity capital, the rights issues may be a faster way to achieve the objective. Companies undertake rights issues when they need cash for various objectives. The process allows the company to raise money without incurring underwriting fees.
A rights issue gives preferential treatment to existing shareholders, where they are given the right (not obligation) to purchase shares at a lower price on or before a specified date.
Existing shareholders also enjoy the right to trade with other interested market participants until the date at which the new shares can be purchased. The rights are traded in a similar way as normal equity shares.
The number of additional shares that can be purchased by the shareholders is usually in proportion to their existing shareholding.
Conversely, existing shareholders can also choose to ignore their rights. However, if they do not purchase additional shares, then their existing shareholding will be diluted post-issue of additional shares.
For C&I Leasing Plc, it recently announced Rights Issue of 539,003,333 ordinary shares of 50 kobo each to shareholders whose names appear on the company’s register of members as at Wednesday, September 4, 2019, on the basis of four new ordinary shares for every three ordinary shares held has commenced.
The offer opened on November 18, 2019, and will close on December 27, 2019.
Speaking in an interactive session with journalists at the weekend, the Managing Director of the company, Andrew Otike-Odibi, said the purpose of the rights issue is to enable expansion of current operations, implement new growth opportunities already identified and optimise the use of technology.
“By supporting the rights issue through acceptance of your rights, the board will be able to implement the initiatives that will enhance the company’s ability to achieve sustainable growth and value creation for all shareholders,” he said.
He pointed out that Nigerian leasing industry is vibrant and can thrive during periods of both economic boom and recession.
According to him, between 2013 and 2018, C & I Leasing’s total assets base saw an increase from N19.11 billion to N52.61 billion at a Compound Annual Growth Rate (CAGR) of 22.5 per cent.
He attributed the growth to the significant increase in operating lease assets from N22.52 billion in 2016 to N30.69 billion in 2018.
Also, the rise in total assets was followed by an increase in shareholders’ funds from N8.09billion in 2016 to N11.83billion in 2018. The rise came on the back of 424.91percent rise in retained earnings recorded between 2016 and 2018.
“Over the same period, profit after tax grew by 30.29percent and this was majorly driven by income from the joint venture and a 1473percent jump in interest income. Notably, there were improvements across segments of the business.”
He said the firm has enjoyed consistent growth and has expanded its scope of business to cover major sectors of the Nigerian economy, providing specialized services, in marine, telecommunications, oil and gas, equipment rentals, manpower outsourcing, and transportation.
He added that between 2013 and 2018, the operating income of the firm increased from N3.73 billion to N7.93 billion.
“The company has grown at a CAGR of 16.3percent over the past five years following: an increase in other operating income, interest income, and relative improvement across business segments,” he said.