Shareholders worry over bank share reconstruction option

President of the Independent Shareholders Association of Nigeria (ISAN), Moses Igbrude, has expressed worry about the possibility of share reconstruction after the banking recapitalisation exercise.

Besides, he urged banks to ensure that stock prices are driven by strong performance rather than artificial adjustments like share reconstruction.Share reconstruction is a strategic corporate action that involves consolidating a company’s issued shares at a specific ratio. This can happen when new shares are issued to shareholders or when existing shares are altered due to a corporate restructure.

Share reconstruction can impact a company’s share value and a shareholder’s portfolio. For instance, it can reduce the number of shares issued and spur an artificially increased share price that is not based on strong fundamentals.

Igbrude cited the 2004-2005 banking sector consolidation of 2004-2005 where banks raised fresh capital from shareholders and subsequently opted for share reconstruction rather than buybacks.

He explained: “After raising capital, some banks opted for share reconstruction instead of doing a share buyback. This process often leaves shareholders at a disadvantage position.” He described share reconstruction as a way of manipulating share prices rather than improving performance to drive stock values.

The ISAN coordinator stressed the need to ensure that banks’ stock prices are driven by strong performance rather than artificial adjustments like share reconstruction.

Igbrude expressed concerns over the poor performance of some banks, which led to the depreciation of their stock prices after listing at high prices on the NGX. He reminded shareholders that without their participation, exchanges like the NGX would not exist, highlighting the crucial role individual and corporate shareholders play in capital formation.

He also emphasised the need for robust technology adoption as a panacea to financial inclusion advancement, especially for elderly investors who may not have access to digital platforms.

“Many of our members, especially the elders, are excluded from the ongoing recapitalization due to their inability to access the technology needed to participate in rights issues or public offers,” Igbrude said.

To address the anomaly, Igbrude called on regulatory bodies, including the Securities and Exchange Commission (SEC) and NGX, to protect shareholders’ interests and ensure that all investors, regardless of age or technological proficiency, are included in the process.

“We must be mindful of human factors when developing policies and technologies. If those behind the systems lack integrity, the technology could be misused,” he said He called for a more inclusive exercise to ensure all-inclusive participation where no shareholder is left behind.