Investment company TransCentury Plc will face a difficult task in raising Sh2 billion through a rights issue after its stock fell significantly below the price at which it will sell the new shares.
Starting on December 29, the company will issue 1.87 billion new shares at a price of KES 1.1 each. This represented a slight discount from the then-current share price of KES 1.11 on November 15, when the details of the cash call were first revealed.
TransCentury’s stock, on the other hand, fell below the rights price on November 18 and has since traded in a range of KES 0.79 to KES 1.07. This means that buying shares on the open market is less expensive for investors than going through the proper issue process. The cash call price now represents a 37% premium over yesterday’s trading price of KES 0.81. Buying stock on the market is especially appealing for small investors whose demand can be met by the daily trading volume.
In recent weeks, TransCentury has moved tens of thousands of shares, with the highest volume of 95,000 shares worth Sh79,800 recorded on August 12.
Existing shareholders can participate in the cash call by purchasing their allocation of new shares at the set price, declining the offer, or transferring the rights to acquire the new stock to other investors.
Purchasing shares on the open market rather than through the rights issue may limit the company’s ability to meet the KES 2 billion target, a large portion of which is earmarked for debt repayment. However, because the volumes traded are small compared to their interests, investors with significant stakes are likely to opt for the rights issue to defend their ownership of the firm.
Kuramo Capital, a private equity firm, owns 24.99 per cent of TransCentury, with the remaining ownership divided among approximately 1,800 individual and institutional investors. The cash call is expected to put to the test investor confidence in the company, which has a negative equity position of KES 9.07 billion.
In September, the company released its financials for the six months ending June 20, 2021, revealing that net losses fell by 47% to KES 764.3 million. This was primarily due to a revenue increase of KES 536 million to KES 2.54 billion, which the company attributed to improved performance by its trading arm AEA Limited and Tanelec Tanzania.
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