Revving up working capital, operational efficiency via rights issues
Rights issues may be particularly more useful for all publicly traded companies, compared with other more dilutive financing options.
Companies need adequate capital base to enable them operate efficiently. They use either equity or debt financing, but equity is preferred since it forms a permanent source of funding that cannot be redeemed easily.
A rights issue or rights offering is a dividend of subscription rights to buy additional securities in a company offered to the company’s existing security holders.
Listed corporations around the world typically raise external equity capital either from existing shareholders under rights issues or from new investors through initial public offering (IPO).
In most cases, a rights issue is offered by closed-end companies; those that redistribute all their earnings failure to which, they face backlash from shareholders who may sell en mass and lower company’s value.
Rights issues strengthen listed institutions’ financial structure and help fund their expansion projects.
It is a useful mechanism for raising equity for such companies. Rights issues give the existing shareholders the option of purchasing new shares, normally issued at a discount to the prevailing market price to encourage participation.
It is noteworthy that the type and source of finance to be raised by any company depends on a variety of factors, of which one is the cost.
C&I Leasing Plc recently announced its 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 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: increase in other operating income, interest income, and relative improvement across business segments,” he said.