By Goddy Egene, 07.28.2010 

 

Apparently encouraged by the success recorded by Oando Plc in its last Right Issue and positive response to the current Rights Issue by Unity Bank Plc, more companies are soliciting the support of existing shareholders for fresh funds THISDAY checks have revealed. 

 

Following the downturn in the capital market, investor confidence has remained at its lowest ebb. This has affected the equities sector of the market since 2008. Financial institutions and manufacturing companies last year showed interest in bond markets. However, three companies, Oando Plc, Interlinked Technologies Plc and Hallmark Paper Products dared the lull the in the market to float Rights Issue late 2009/early 2010.

 

It was gathered that the high cost of funds and low lending activities by banks are compelling more companies to seek for funds from existing shareholders via Rights Issue. UTC Nigeria Plc is one of such companies seeking fresh funds from its shareholders. The company, which was reclassified from conglomerates sub-sector to food/beverages, got the approval of its shareholders to issue rights for raising fresh capital last week.The shareholders approved that a maximum of 411.25 million shares be issued at a date and upon such terms and conditions to be determined by the directors.

 

UTC had gotten a similar approval to source additional funds by a way of public offer but this disrupted by the financial meltdown.Chairman of the company, Apostle Hayford Alile, told the shareholders at the Annual General Meeting held in Abeokuta, Ogun State that  the Board proposed the Rights Issue as a “funding means and it is our believe that the major investors will take up their rights. This will reduce interest rates and make working capital funding cheaper and less stressful especially for our upcoming Sagamu factory project.” 

 

It was gathered that major shareholders of  company are willing to commit fresh funds to the company, a development that  partly informed the  decision for the rights issue.Market sources said apart from UTC Nigeria, other companies are warming up to join the Rights Issue train.“Apart from the fact the equities market has dried up because of the market downturn, the banking reforms compounded the situation because banks suspended lending. 

 

But companies need to fund their operations and given the high interest charges companies pay even on old borrowings,  many of them are resorting  to existing shareholders for assistance. I am aware of some companies making such moves to float Rights Issue. They are only waiting for the market to firm up,” the managing director of a stockbroking firm, which is involved in packaging new issues said.

 

Source:ThisDay