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Investor apathy greets Flour Mills’ N30billion rights issue

By on August 25, 2015

As Flour Mills of Nigeria Plc prepares to raise fresh capital from existing shareholders through a rights issue, THISDAY checks revealed that some of the shareholders would not take up their rights.  Some of the shareholders who spoke to THISDAY said they were yet to get value for the Rights Issue the company made in 2011 and are not encouraged to stake their funds in the coming rights issue.

FMN  last month got the approval of  shareholders to raise about N40 billion from the capital market through a right issue. The company, penultimate week, notified the Nigerian Stock Exchange (NSE) of its plan to make a right issue of 1.093 billion ordinary shares of 50 kobo each to shareholders at the price of N27.50 per share. This offer is expected to fetch the company about N30 billion.

However, some of the shareholders told THISDAY that since the last rights issue of 2011, the value of shares has dipped by 59 per cent, adding that considering the current market price, the proposed rights issue does not offer any incentive to attract investors.

The 2011 rights issue of FMN was done at N62 per share, while the company offered the shareholders 455.566 million shares in a ratio of eight new shares for every 33 shares already held to raise N28.2 billion.

Since that right issue, the share price of FMN has dipped from N62 to close at N25.07. However, the company has proposed a new right issue of 1.093 billion shares at N27.50, which is about 10 per cent higher than the current market price.

“When you look at the offer terms, it is not attractive to me. And I do not see any incentive to take up my rights. Since the last issue that was made in 2011, we have seen an erosion in the value of our investment. If the company wants to succeed with the issue, the offer terms should be reviewed. Unless there is a hidden agenda somewhere because I do not see why the offer price should be far higher than the market price,” a leader of shareholder group said.

The fortunes of FMN have been affected negatively in recent times due to huge debt burden that has led to the company paying high charges. For instance, the company spent about N19 billion on financial charges  for the year ended March 31, 2015, up from N16 billion in 2014.

The Chairman of FMN, Mr. John Coumantaros, had  at an extraordinary general meeting in Lagos,  in July said  the funds from the proposed rights issue  would help the company reduce its debt burden, lower its interest charges as well as to augment its working capital.

He added that with the proceeds of the rights issue, FMN would be strongly positioned to pursue high growth business opportunities without straining its liquidity.

“The foreign exchange market is getting tough and we have to find ways to manufacture locally. We are undertaking a very big investment programme,” he said.

 

[ThisDay]