Investing in First Bank's Rights Issue: A Step-by-Step Guide

FBN Holdings has recently announced a rights issue to raise approximately N150 billion. This means that existing shareholders of FBN Holdings have the right to purchase additional shares at a discounted price. The move is part of a broader recapitalisation strategy to strengthen the bank's financial position and support its growth initiatives. In this blog post, we will analyse the current state of First Bank shares and provide insights for investors considering participating in the Rights Issue.

The highlight of the FBN Holdings rights offer:

• Purpose of the offer: The funds raised from the rights issue will be used to recapitalise First Bank of Nigeria Limited and support its growth initiatives, including digital banking and international expansion.
• Number of shares: 5,982,548,799 new ordinary shares
• Offer price: ₦25.00 per share
• Rights ratio: 1 new share for every 6 existing shares held
• Record date: October 18, 2024
• Offer period: November 11, 2024–December 10, 2024

First Bank Financial Performance

First Bank has shown impressive financial performance in recent years. For the nine months ended September 30, 2023, the bank reported a 134% year-on-year increase in gross earnings to N2.25 trillion. Profit before tax also grew by 128% to N610.9 billion. The bank's cost-to-income ratio has improved, and it has maintained a non-performing loan ratio of less than 5% despite the challenging macroeconomic environment. These strong earnings are driven by growth in both interest and non-interest income.

Use of Proceeds

The proceeds from the rights issue will be used to shore up First Bank's capital for business development and growth, investment in automation and digital banking, and support international business expansion. The bank plans to deepen its footprint in strategic markets, including key African economies and its existing presence in the United Kingdom, France, and China.

Rights Issue Details

The rights issue involves offering 5.983 billion ordinary shares at N25 per share, with one new share for every six ordinary shares held as of October 18, 2024. The offer is expected to close on December 12, 2024. Shareholders are encouraged to take up their rights to strengthen the group and position First Bank for sustained growth and improved performance.

Eligibility Criteria

To be eligible for the rights issue, shareholders must have held shares in FBN Holdings as of October 18, 2024. Each eligible shareholder will receive one new share for every six ordinary shares held. Participation forms are available to current shareholders via the corporate website, FirstBank locations, and approved issuing houses. The application can also be made via the FirstMobile platform.

Investment Perspective

For investors, the rights issue presents a compelling opportunity to invest in a bank with a strong financial performance and a clear growth strategy. The discount on the rights issue price provides an attractive entry point, and participating in the rights issue allows investors to maintain their proportional stake in the company. Additionally, the bank's focus on digital banking and international expansion positions it well for future growth.

Advice for Qualified Shareholders

If you are a qualified shareholder, it is advisable to take up your rights to maintain your proportional stake in the company and benefit from the potential upside as First Bank continues to grow. The rights issue price of N25 per share offers a discount to the current trading price, making it an attractive investment opportunity. Additionally, participating in the rights issue will provide essential capital buffers to capitalise on business opportunities within the economy.

How To Apply To FBN Holdings Rights

To apply for First Bank's rights issue, follow these steps:

Eligibility Check: Ensure you held shares in FBN Holdings as of October 18, 2024. You will receive one new share for every six ordinary shares held.

1. Obtain Application Forms: Application forms are available through First Bank's corporate website, at FirstBank locations, and through approved issuing houses. You can also access the forms via the FirstMobile platform.
2. Complete the Form: Fill out the application form with the required details, including your shareholding information and personal details.
3. Submit the Form: Submit the completed application form along with the necessary documents and payment (if applicable) to the designated issuing house or through FirstBank's online platforms.
4. Confirmation: Once submitted, you will receive a confirmation of your application. Keep an eye on communications from First Bank for updates on the rights issue.
5. Rights Allocation: If your application is successful, you will be allocated the new shares, and you can expect to see the additional shares reflected in your account.

Larger Economic Context

Nigeria's economy is expected to see modest growth in 2024, with GDP projected to rise by 3.1%. The government's economic reforms, including the removal of fuel subsidies and floating the Naira, are anticipated to stabilize the economy and improve investor confidence. However, challenges such as inflation and currency volatility remain.  It's also important to note that investing is a complex financial transaction, and it's advisable to consult with a financial advisor to make informed decisions about participating in the FBN Holdings rights offer or any other investment decisions.

Future Projection

Considering the economic reforms and First Bank's robust performance, the share price is likely to see positive momentum post-rights issue. The rights issue price of N25 per share, which is a discount to the current trading price of N28.75, should attract investors and provide a strong foundation for future growth. This discount is designed to incentivize existing shareholders to participate in the rights issue and maintain their proportional stake in the company.  If the economic reforms continue to yield positive results and First Bank maintains its growth trajectory, the share price could potentially rise to N35-N40 within the next 12–18 months. However, this projection is subject to external factors such as global economic conditions and domestic policy changes. Investors should keep a close watch on the bank's performance and the broader economic environment to make informed decisions.

Conclusion

First Bank's rights issue is a strategic move to recapitalise the bank and support its growth initiatives. The strong financial performance and attractive rights issue price make it an appealing investment opportunity for existing and potential shareholders. Investors should carefully consider their options and consult with their financial advisors to make informed decisions.

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  FAQs

What is a Rights Issue?

A rights issue is a method used by companies to raise capital by offering existing shareholders the opportunity to buy additional shares at a discounted price.

Why is First Bank Conducting a Rights Issue?

First Bank is conducting a rights issue to strengthen its capital base, fund expansion plans, and improve its overall financial position.

How Does a Rights Issue Work?

Announcement: The company announces the rights issue, specifying the number of new shares to be issued and the subscription price. Rights Allotment: Shareholders receive rights, which entitle them to buy new shares at a discounted price. Subscription Period: Shareholders have a specific period to exercise their rights and subscribe for new shares. Share Issuance: After the subscription period, the company issues new shares to those who exercise their rights./p>

What are the Benefits of Participating in the Rights Issue?

Potential for Capital Appreciation: If the share price rises after the rights issue, shareholders who participated may benefit from capital gains. Maintaining Ownership Percentage: By subscribing to the rights issue, shareholders can maintain their proportionate ownership in the company. Supporting the Company's Growth: Participating in the rights issue helps the company raise capital to fund growth initiatives and improve its financial position.

What are the Risks Involved in Participating in the Rights Issue?

Dilution of Ownership: If a shareholder chooses not to participate, their ownership percentage in the company may decrease. Market Volatility: The share price may fluctuate, affecting the value of the investment. Opportunity Cost: Funds invested in the rights issue could be invested elsewhere with potentially higher returns.