Zenith Bank Warms for New Share Offer, Experts Rule Out Investor Fatique
Acceler8now.com, November 5, 2007
One of the words that could aptly capture the Zenith Bank spirit is "indefatigable". Any observer of the Nigerian financial system will easily concede to the untiring and unwavering drive of the bank. The latest stories about its proposed new share offer only go to reinforce that notion. And in case you haven't heard, Nigeria's frontline bank, Zenith International Bank Plc, is warming up to return to the capital market with an offer to raise additional N150 billion capital. That will be the third trip to the market in four years, with only 2005 as the rest period.
It would be recalled that Zenith bank was first in the market in 2004 to raise funds in an IPO that put up 800 million shares for subscription at N10.90. That was part of the recapitalisation drive during the Nigerian banking sector first-phase reform. However, before other banks that met the recapitalisation requirement had fully settled down from the rigours of the recapitalisation drive, Zenith was back to the market in 2006 to raise a then record figure of N50.7 billion, which left it dusting most competitors on capitalisation. Now, the bank is working a return again to up its capital base.
Against the backdrop of various share issues currently in the market and the persistence of new issues for several months running, questions are being asked as to the market's capacity to keep absorbing. Experts spoken to, however, insist that investor fatigue is nowhere near setting in. They also pointed to the huge sum of money in over subscription of the First Bank offer, which should soon be returning to investors. First bank had decided to retain only N250 billion of N470 billion it received and already has the approval of Security and Exchange Commission to that effect. Some N220 billion should therefore be on its way back to investors. In addition, there is the factor of the rapidly growing awareness and interest in stock investing, which is bringing out Nigerians of all classes and regions into the market. In effect, part of the huge sum long locked in the informal sector is also coming out. Foreign interest in the market is also significant now, while many local shareholders seem willing to sell off some existing holdings to buy the new offers. That partly accounts for the current depressed state of the secondary market where prices have been heading down. All said, they argued that the market's capacity to mop up new shares offered by companies considered top quality is not in any doubt at the moment. That's particularly so when attractive discounts are offered.
The Zenith Bank offer is a hybrid comprising of a rights offer to raise N71.23 billion from 1,930,317,563 units at N36.90 per share and a public offer that should net N78.77 billion from 2,025,000,000 units at N38.90 per share. Both prices represent a marked discount (25% and 18.5% respectively) from the last traded price of N46.09. The stock has already been placed on suspension at that price.
The performance track record of Zenith Bank is sure to give it enough leverage to easily meet the funding objective. Its 2004 offer was at N10.90 per share, while by 2006, the share price had advanced enough for the offer to go at N16.90. Today, investors in those two offers will be counting a lot of wealth the stock has put in their pockets. That capital growth has been the market's response to consistent earnings growth and healthy dividend payout. Earnings growth for the last financial year to June 2007 was 53%, while profit after tax (PAT) rose 61.60% from N11.6 billion to N18.8 billion. Dividend payout was N1.00 per share cash dividend backed with a bonus issue of one for four. The bank has already announced current year first quarter PAT growth of 70% over 2006 (from N4.73 to N8.06 billion).
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