The NIC bank’s rights issue will come to a close today at 1500hrs (3 pm). The rights issue has been ongoing since August 23rd this year and has seen investor participation escalate in this last week. “We are confident of a full subscription, given our track record of profitability, good management and sound expansion strategy,” said Mr. James Macharia, The Group Managing Director.
The rights issue is being carried out at a price of KES 21.00 which represents a discount from yesterday’s closing price of KES 33.25. This discount of 37% (approximately) shows an increase from the initial discount of 32% of the opening price on the day it started. The shares hit a high of KES 36.00 on 6th September last week and presented the participating shareholders with a discount of 42%.
Here’s a quick look at what you stand to gain (or lose) from participation in the rights issue:
If we assume that you’re going to buy NIC shares today at their current market price of KES 33.50, and these are valid for a portion of the new rights issue shares, the effect of your decision could be a decrease in your stock’s price to KES 30.60 because of share dilution – a phenomenon where the price of a company’s shares falls after a rights issue when the new shares are introduced into the market. The rationale behind the price drop is that the rights issue discount price – KES 21 – in NIC’s case, represents the lowest price the company believes the shares will hit. Our projected KES 30.60 price of your NIC shares post rights issue will be above this KES 21, putting you in a relatively safe zone.
Should you hold onto the shares and the Capital Markets Authority (CMA) approve the NIC bonus issue the bank intends to carry out later, you will get 1 extra share for every 4 that you hold FOR FREE. The effect of this could be to decrease the share price by just about KES 2.00. You’re now looking at the number of NIC bank shares you own having gone up by over one-third from before the rights issue and the share price not too far below where you bought them at.
Here’s the catch: If your goal in participating in the NIC rights issue is to make more money through the dividends paid out on each share, your goal may not be met in the short term. This is because acquiring more shares doesn’t necessarily mean you’ll be receiving the same amount in dividend payout (per share). Rights issues are often associated with lower dividends thereafter and this could also happen with NIC. If anything, the total you’ll receive when their first dividend announcement is made might be less despite your increased share quantity. More shares doesn’t necessarily mean greater dividends.