The 2024 equities market was marked by four rights issues with initial public offerings (IPOs) extending an almost decade long drought at the Nairobi Securities Exchange (NSE).
- •Standard Group, HF Group, Sanlam Kenya and Family bank have announced rights issues in the year, all seeking to boost their balance sheets, while armed with growth and expansion strategies.
- •IPOs at the Nairobi Securities exchange remained in a comatose state in 2024 amid a surge in benchmark indices to record highs, with the last company listing shares in October 2015.
- •Unlike IPOs, a Rights Issue is offered to existing shareholders in proportion to their holdings at the moment, usually at a discounted price for a specified time frame, after which it is returned to normal.
A rights issue is an offer of additional shares to existing shareholders of a company directly, without going through the secondary market at a reduced price.
Family Bank PLC
Of the KSh 9.3 billion rights issue fronted in November 2023, the lender raised only KSh 252 million, missing the target by about 97%.
The rights issue performance remained dismal despite two extensions from the issue date which ended in January 2024.
The cash call offered 643.5 million new shares at KSh 14.5 per share aimed at funding growth, investing in IT infrastructure and expansion beyond Kenyan borders.
Sanlam Kenya
Sanlam has a KSh 3.3 billion rights issue to make an early repayment to an existing loan facility from Stanbic Bank Kenya, reducing their debt levels.
The cash call, approved by shareholders in December 2024, is expected to reduce long term debt levels and boost working capital to ease liquidity pressures and provide financial flexibility.
The company’s shareholders voted to increase the company’s share capital from KSh 2 billion to KSh 3.72 billion, divided into 400 million ordinary shares with a nominal value of KSh 5 each.
HF Group PLC
Listed lender, HF Group announced KSh 6 billion rights issue with a 30% greenshoe option to boost capital ratios that had fallen below the statutory minimum.
HF Group Plc offered up to 1.5 million new ordinary shares to existing investors at KSh 4 inclusive of 30%, at a ratio of 3 shares for every share held.
The Rights Issue was structured to offer shareholders two new ordinary shares for every one existing ordinary share held, with the shareholders having the option to apply for additional shares.
Standard Group PLC
With steeper loss margins in 2023, Standard group announced a KSh 1.5 billion rights issue in a bid to strengthen their balance sheet and finance digital expansion amid restructuring.
The issuance marked the first major corporate action since senior management changes in August when Marion Gathoga took over as Chief Executive Officer.
How Markets Perceive a Rights Issue
Listed companies often need to raise additional capital to finance ongoing operations through debt capital from lending institutions or equity capital by issuance of shares. Issuing capital and raising debt are the two primary methods of raising capital for listed entities.
Rights issues tend to lower investor confidence, negatively affecting share prices of companies as ownership percentage in a firm is diluted.
However, when executed successfully, a rights issue can boost a company’s earnings per share if the money raised is invested in high yield returns greater than the cost of capital.
Over the years, KenGen, DTB Bank, Stanbic bank Kenya, NCBA Bank and Standard Chartered Bank Kenya have had successful Rights issues over the years, creating value for shareholders.
