FBN Holdings Plc (FBNH) has launched a rights issue offering 5,982,548,799 ordinary shares at N25 per share, aiming to raise N149.56 billion.
This move is intended to ensure compliance with the Central Bank of Nigeria’s (CBN) capital adequacy requirements and reinforce the bank’s liquidity. The proceeds will also help position FBNH’s flagship subsidiary, First Bank of Nigeria Limited, for sustained growth in Nigeria’s highly competitive banking sector.
The rights issue, which grants shareholders one new share for every six shares held as of October 18, 2024, has been well-received in the market, with FBNH’s share price rising 7.6% above the issue price on its opening day and continuing to climb, reflecting growing investor confidence.
A significant portion of the raised funds—N103.12 billion (68.95%)—will be allocated to boosting First Bank’s Capital Adequacy Ratio (CAR), ensuring the bank can withstand economic shocks and meet regulatory requirements. These funds will be directed towards enhancing corporate lending (N77.34 billion) and retail operations (N25.78 billion), addressing liquidity challenges.
A key focus of the rights issue is expanding FBNH’s lending capacity. The bank’s loan portfolio has grown significantly, with loans and advances rising by 72% year-on-year in 2023 and further increasing to N12.73 trillion by September 2024. This growth is expected to drive higher interest income, though managing credit risk will be critical, as the bank faces increasing pressure from loan defaults, with its cost of risk rising sharply in 2024.
The rights issue also allocates N29.46 billion (19.7% of the proceeds) to expanding FBNH’s international presence. This will diversify the bank’s revenue streams and reduce its reliance on the domestic economy, which remains vulnerable to currency and commodity price fluctuations.
For existing shareholders, the rights issue offers an opportunity to purchase shares at a discounted price of N25, below the year’s average price of N25.75 and well below the 52-week high of N43.95. While this presents an attractive entry point, market dilution due to the increase in shares could have a short-term impact on share prices. However, with continued growth and the effective use of proceeds, FBNH’s market valuation could surpass N1 trillion.
The rights issue provides FBNH with the capital necessary to strengthen its financial position, support ongoing growth, and improve risk management. While short-term market dilution is a concern, the long-term benefits of increased lending, diversification, and capital adequacy make this a strategic move for both the bank and its investors. If managed effectively, the rights issue could drive significant shareholder value and secure FBNH’s position as a leading player in Nigeria’s banking sector.
