Daar Communications IPO: Understanding the Offer for Subscription and Offer for Sale
SmartProInvesting.com, March 12, 2008
The Daar Communications Plc initial public offering (IPO), the first broadcast sector share offer in Nigeria, opened February 25, 2008 and will close on March 31, 2008. The share offer principally aims to raise funding for a major facilities expansion and upgrade project and for content procurement. A key component of the proceeds (some 46%) is targeted at the deployment of a digital multi-channel platform that will re-position the network for the digital television era.
For this, the offer is aiming to raise a net sum (after issue costs) of N8.52 billion for Daar Communications Plc, to be applied to the expansion objectives outlined in the offer prospectus.
Investor Question
One aspect of the offer would seem to need clarification, going by inquiries received. That is as to what the two components of the offer - the Daar Communications Plc Offer for Subscription and the Daar Investment and Holding Company Limited Offer for Sale - really imply.
For some potential investors, it is confusing and needs clarification.
Understanding the Double-barreled Offer
The offer, as spelt out in the offer prospectus, consists of:
- An IPO by way of Offer for Subscription by Daar Communications Plc of 1,829,478,000 ordinary shares of 50k each at
N5
- Offer for Sale by Daar Investment and Holding Company Limited of 960,000,000 50k ordinary shares of Daar Communications Plc at
N5 each.
As would be seen, the offer for subscription if 1,829,478,000 shares by Daar Communications is like any other IPO. What, perhaps, cound confuse is the other leg of the offer - the offer for sale. An offer for sale is often an offer of shares of a company through an intermediary, often an issuing house or investment company, which has taken the block holding and then offers it to the public. In the case of Daar Communications, that offer is being made by Daar Investment and Holding Company, which
already holds the shares. As the prospectus states, Daar Communications Plc has increased its authorised share capital to 8,000,000,000 ordinary shares of 50k each. Out of this, 6,170,522,000 ordinary shares of 50k each was already issued and fully paid-up, held by Daar Investment and Holding Company. The balance of 1,829,478,000 is what is currently offered to the public in the offer for subscription.
However, Daar Investment and Holding Company, by the offer for sale, is offering 960,000,000 shares out of the 6170,522,000 shares already held by it. That is why the prospectus explains that the net proceeds of the 960,000,000 shares will not go into the coffers of Daar Communications Plc. It will be received by Daar Investment which is disposing part of its holding in Daar Communications. The funds to be received by Daar Communications and applied to the planned expansion and upgrade project will only be the net proceeds of the offer for subscription of 1,829,478,000 shares.
For the investor, both offers boil down to an investment in Daar Communications Plc. All the shares would be listed at the conclusion of the offers.
Given that both are priced at N5, it would really amount to the difference between six and half-a-dozen whichever is invested in.
If our calculation is right,
Daar Investment and Holding Company would retain, at the end of the offer, just about 65% stake in Daar Communications Plc, while the investing public gets about 35%.
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