C&I Leasing’s Share Reconstruction, most genius option of creating more wealth for shareholders- Alex Mbakogu

One of the ways to know a good stock is not just when the price is growing but rather growing at a consistence rate and in a sustainable manner even in general market downturn.

 

C&I Leasing Plc is one of such stocks that has over the years proven to have rewarded investors both in sustainable capital appreciation and consistent dividend pay-out. Although at a particular period, the company for 2 years deferred payments of dividend but has since 2018 resumed.

 

Back to back for number of years now the company’s stock has emerged the best performing equity on the floor of the Nigerian stock exchange in terms of price growth, returning over 200% yearly.

In year 2019, it emerged has the highest percentage price gainer with 231.46% growth, closing the year at N5.9 against the N1.78 it kicked off at the beginning of the year.

 

The Chief Financial Officer of C&I Leasing Plc, Mr Alex Mbakogu, in a chat with Ruth Ibikunle explained the benefits of their ongoing Rights Issue and cleared the air on the Share Reconstruction of the firm in December 2018. Excerpts

 

What is the secret behind this brilliant performances recorded by your company over the years?

“C&I Leasing has been in operation for 29 years now running. This year we will be 30 years essentially, the performance you have seen is a result of combination of factors.  We have experienced Board, management and the business has a very clear vision, strategy and focus; and we strive to align and draw from the strength of the board, management to be able to drive the vision of this business. We have dedicated staff and our stakeholders who have supported the business in one way or the other. We have our bankers and shareholders who have pledge their support. So accumulation of these factors is what you are seeing in the performance of C&I Leasing plc”.

 

Why the company is embarking on this exercise?

The business will be 30 years this year, and if you check our history, you will see that the business has grown. Our balance sheet today is N56bn. We started from ground zero and then moved to 5billion balance sheet, thereafter to 10, 15, 20, 25, 30, 40, 45 and we are over N50 billion now.

For each of these growth, we require a balance capital both debt and equity. Last year the company looked at its funding and capital base and decided to have a capital plan for the next 5 to 10 years. That capital plan is a function of debt and equity. We have started with debt; last year we raised N7 billion bonds and it was actually subscribed in excess of what we wanted. That is the debt part of it.

In equity, we have rights issue and public offers. When business is doing well sometimes it is good to give measure of performance to existing shareholders. That is what right issue is all about. In the programme of the event we have right and public offering. So Rights is the first stage whereby existing shareholders are allowed to buy into the company, thereafter we can start the public offering. So we think that rights issue is cheaper, the processes are less cumbersome, and of course it’s a kind of reward to shareholders that have endered with the company all this while.  We will come to public offering probably next year.

In December 2018, C&I Leasing Plc did a share or capital reconstruction of which from what we read on journals, many frowned at the exercise, believing that investors are just being short-changed . What is your reaction to this perception

I think it is not the right perception because nobody was short changed. In fact, the Management and Board at that point in time thought that that was the best option for the company and I will tell you why. We plan to raise shares, more capital. We have people that invested in Zero coupon convertible debts. So for you to convert, you need more shares. We have about 3 billion authorized capital; already we have utilized 1.6 billion, remaining 1.4 billion. Now if you want to do rights issue or public offering, you need to increase your authorized capital. If you have debt to convert, you don’t need to increase your authorized capital. Increasing your authorized share capital involves incurring some stamp duties expenses. So there are options; do you do reverse stock split or reconstruction or do you go to stamp up your authorized share capital? We are in business, so you weigh the options, you do the analysis; and we think that doing a reconstruction is the best option.

What we did was that for every four (4) shares that shareholders were holding at that particular point in time, we gave them one (1); they have not lost anything. In terms of value, the value of the company has not diminished because there were no losses.

What we’ve done was to from existing, create more shares; and don’t forget that when we did that, the value of the shares were marked up by the same level of split. What do I mean? One (1) share was about 50 kobo at the point of reconstruction; the moment we did the reconstruction, the shares became N2. So you have four (4) that is N2, we gave you one (1) that is still N2; so nobody lost anything.

In fact, the company saved huge money by doing reverse share split. We believe that we rather use the money to expand the business than using it to stamp up our authorized share capital. I that’s a very genius way of trying to create more room for additional shares.

 

The company is issuing Five Hundred and Thirty Nine Million, Three Thousand, Three Hundred and Thirty-Three ordinary shares of Fifty Kobo each at Six Naira per share.  Why do you think I should exercise this right when I could possibly get this stock lower than the right price later in the secondary market?

 

Let us even assume that the market price is lower than the offer price, to start with, what you see being sold are just minimal quantities in 50,000, 20, 000, 100, 000units. So, if you want to buy in quantity, you won’t see to buy. When you have large numbers to buy it becomes a discussion between the owner of the share and the intending buyer. So, you won’t get it at anything less than N6.

This is January, I know, people need to pay school fees, probably they sell 100,000units, 50,000units, but when you have a strategic investor, it becomes a discussion and I tell you, nobody will sell below N6. If you have, come, I personally will buy it and give that person N6. But be that as it may, as you’ve said, we closed latest above N6, I think that, for strategic investors, even existing investors who want to up their units, the best option is to key into the right issue. N6 is a highly discounted value.

 

For the shares. I think that one; it gives you significant holding, which you can’t get from the market floor. You can do your analysis and see how much or how many units you have people put up for sale on the floor of the Nigerian stock exchange, very minimal. So, it’s for strategic holding, it’s cheaper, it creates less stress for investors and for everyone and I think that people should key into it.

If we are doing public offering, we can assure you it can’t be anything near N6, it will be far above. N6 is a discounted value.

The good thing is even if you are not a shareholder, you can buy into the right because they are tradable.

If you are not an existing shareholder, all you need do is to indicate interest that you want to be part of it, then, your stockbroker will guide you.

This right issue is tradable for both existing shareholders and intending investors.

The shareholders have options, one is to exercise their right in full, second is to exercise partially and third is to renounce.

So, those that are renounced are what will be traded on the floor of the exchange for new and intending investors to snap up.

 

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