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The First Inland Bank Share Offer: Good Buy?

It certainly won't be news to you again that Nigeria's First Inland Bank Plc is in the capital market to raise additional capital to the tune of N100 billion through an offer for subscription and a rights issue. What possibly will matter now is an evaluation of the offer as to how good an investment it presents. With many investment options open to the investing public, it's clearly a tough choice knowing what to put money into. Not only is it relevant to evaluate the viability of a given investment opportunity, there's also the need to rank options, given the investment funding constraint. You not only look out for good investments, but also want to determine which are your best options, given that you may be unable to fund all and, besides, want the most ROI. None of that is easy job, yet it remains a crucial task.

The Inland Bank Offer
The offer has just opened January 3, 2008 and will run through the month, closing January 31, 2008. In the three-pronged offer, the bank is putting out to the investing public 5,000,000,000 ordinary shares of 50 kobo each at an offer price of N9.50 per share. This is bundled with another lot of 4,000,000,000 irredeemable non-cumulative convertible preference shares of 50 kobo each at N9.50 per share. Existing shareholders are also offered an opportunity to boost their holdings through a rights issue of 968,863,000 ordinary shares of 50kobo each at N8.50 per share. First Inland Bank is currently listed at N13.30 on the Nigerian Stock Exchange. The sale is in a minimum lot of 1,000 units and multiples of 100 units thereafter.

While First Inland Capital Limited is the lead issuing house, notable market operators BGL Securities, FutureView, Greenwich Trust, Oceanic Bank, Skye Bank, Integrated Trust and Investments as well as Sterling Capital Markets as joint issuers. Between them, as well as FCMB, the offer is firmly underwritten to the tune of 80%, in line with current regulation. Absorption of any over-subscription, up to the regulatory limited of 25%, is also provided for in the offer prospectus.

Application of the expected net proceeds of N89.6bn is targeted at growth objectives. 39% (N35bn) is proposed for operational working capital, while branch expansion will absorb N24bn (27%). Upgrade of technology infrastructure is allocated N16bn (18%), while the remaining chunk (N14.5bn) is budgeted for recapitalisation and development of subsidiaries.

A Word on the Preference Shares
The offer includes a tranche of preference shares which are "irredeemable non-cumulative convertible" preference shares. Preference shares enjoy a preferential right in the payment of dividend and, in liquidation, a preferential repayment of capital, over ordinary shares. They rank for dividend before the ordinary shares and enjoy a fixed rate of dividend. Generally, preference shares can be cumulative or non-cumulative, convertible or non-convertible, redeemable or irredeemable and participating or non-participating. Cumulating refers to a right to have unpaid dividend carried forward (on cumulative basis) to subsequent year(s) and paid whenever there is profit. Convertibility is as to whether investors have a right to convert their holding to ordinary shares, usually after a fixed period. Redemption is as o whether the company can choose to purchase back the shares (at its discretion), thereby paying off the shareholders. Participating preference shares have a right to share in the surplus profits of the company, in addition to their fixed dividend. Within this context, the "irredeemable non-cumulative convertible" preference shares would simply mean shares which enjoy that preferential dividend status, cannot be redeemed by the company (company won't truncate your ownership), are convertible (in line with set terms, you can choose to convert to ordinary shares) but are non-cumulative such that unpaid dividend will not be carried forward.

Some Decision Criteria
Here are some points that may be helpful is assessing the offer:

• First Inland rose from the rubble of First Atlantic Bank Plc, Inland Bank Plc, NUB International Bank and IMB International Bank Plc to emerge one of the 25 recapitalised banks in the Nigerian market. Though one of the lower-tier operators in the industry, it has no doubt shown resilience and has continued to gain strength and consolidate its market presence.
• It's financials showed significant improvement in operational performance in the last financial to April 30, 2007. The current offer is expected to further boost operating capital and position the bank for a more robust market presence. However, given that the bigger banks are also in the race for more capital injection, it will no doubt remain a lower-tier player in the industry for some time to come.
• The industry is strong on growth as more of the huge unbanked segment of the society increasingly embraces the banking culture. There is no doubt that more Nigerians are coming out to use banking services and are embracing some of the technology-driven services are now available in the market. First Inland has had a technology focus that can provide a healthy edge in tomorrow's market.
• At its current pricing and the growth potential that improved funding stands to activate, an investment in the future of the bank, as a long term position, would appear attractive. The growth expectations reflected in the 3-year forecast included in the prospectus further re-enforce this expectation.

Overall, the growth shown by the capital market and indications of the general sustenance of that trend in the foreseeable future, would encourage continued investment. Building up on one's investment position at this stage may prove a wise decision in the years to come.

If you need to, the subscription form and offer prospectus can be downloaded here.

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