A very successful conclusion to an audacious effort by the indigenous oil company, Oando plc, to test the capital market in search of N20 billion in January may yet be the real first sign that a much humbled Nigerian capital market is now really turning the corner, BusinessDay can today reveal.
Information gathered from various sources close to the rights issue both in Nigeria and South Africa, where Oando is also listed on the Johannesburg Stock Exchange, and for which share illiquidity had long been an issue, shows that shareholders took up the offer in full with 30 percent over the amount put out by the company. It is now believed that Oando will likely provide for this additional request after regulatory authorities would have vetted the outcome of the rights issue.
On January 25, 2010, the company launched an offer to raise N20 billion through the issuance of 301,694,876 ordinary shares of 50kobo each to existing shareholders in Nigeria and South Africa at a ratio of one new share for every three already held at N70 per share. BusinessDay declared the rights issue then as a bold move to test the capital market which had been in recession for about two years.
Approximately seven weeks after the offer closed, BusinessDay has learnt from sources at the collation and receiving centres of the issue across Nigeria and South Africa that Oando received record applications from shareholders and investors, surpassing the number of shares on issue, and indicating that the offer was oversubscribed by over N7 billion.
BusinessDay learnt that the Securities and Exchange Commission in Nigeria is now in the final stages of the approval process before the result of the offer would be officially announced. Senior officials of two of the banks involved in receiving who were directly connected to the offer confirmed to BusinessDay that the returns they received were in the higher numbers compared to what they had seen in the past. BusinessDay learnt that the value of all applications in respect of the offer totaled N27 billion indicating an oversubscription of over 30 percent.
Consistent with the interest the rights issue received in Nigeria, our source also confirmed the strong performance of the rights in South Africa where the company has a dual listing. Initial indications are that the rights have also generated more interest than there is capacity to absorb.
Stock market sources are excited by this development as it is believed to signal a complete recovery for the stock market and the economy as a whole. “We believe this is a strong signal to investors that our market is upbeat again. Many investors who have been overly cautious and skeptical will follow Oando to begin to trust the market again. We are indeed happy about this” a top Lagos based stockbroker commented.
Analysts reports indicate that the company’s diversified model and strategic position as a leading indigenous player in the upstream segment of the Nigerian oil and gas sector are underlying indicators of its future value. Vetiva, a stock broking firm, had recommended Oando shares as buy/overweight. A terminology used to describe stocks that are highly undervalued but with strong fundamentals and where potential return in excess of or equal to 20% is expected to be realized between the current price and analysts’ target price. “We believe that Oando’s equity should trade within N131.85 billion and N146.16 billion post-Rights, relative to itsTheoretical Ex-Rights Market Capitalization of N106.18 billion”.
With this development, analysts say the paid up shares of the company which is currently 905.084 million units or N77 billion at N85 per share is likely to increase significantly. The result of the rights issue confirmed directors and other parties’ optimism that the fundamentals of the company were strong enough to drive the offer through.
“It is a bad time for companies with weak fundamentals and a good time for companies that do things properly. We do things properly and had actually grown our profit by 50 percent,” managing director, Wale Tinubu had said earlier when the offer opened.
Oando is not only relishing the success of the offer as further investigations revealed that the directors are geared to reward old and new shareholders when it announces its result for the year ended December 31, 2009. Feelers are that the company will declare a bonus for new and old shareholders in addition to dividend payout. A senior official of the company declined comments when contacted “I believe the rights issue is before the regulatory bodies now. The results will be announced through the usual official channels:”
The net proceeds of the rights issue after deducting the total cost of the issue estimated at N681.312 million would be used for upstream asset refinancing, operational capital development and upstream business development and working capital.The company intends to broaden capacity by investing in information technology, processes, and people to enhance upstream operating competencies and execution.
To finance its planned expansions, the Board of Directors at its Annual General Meeting in July secured the authorization of its shareholders to raise additional capital of up to N200 billion, by means of equity or debt offerings. At a subsequent Extra-ordinary General Meeting, the shareholders passed a resolution increasing the Authorised Share Capital from N500 million to N1 billion, which translates to about 2 billion ordinary shares.