FBN Holdings Plc Launches N149.56 Billion Rights Issue to Strengthen Capital Base and Drive Growth

FBN Holdings Plc (FBNH), a prominent player in Nigeria’s financial sector, has unveiled a rights issue offering 5,982,548,799 ordinary shares at N25.00 per share.

The initiative aims to raise N149.56 billion, aligning with the Central Bank of Nigeria’s (CBN) capital requirements while supporting liquidity, financial stability, and sustainable growth for its flagship subsidiary, First Bank of Nigeria Limited.

Details of the Rights Issue
The offer is structured as one new ordinary share for every six shares held, based on the qualifying date of October 18, 2024. The market has responded positively, with FBNH’s share price climbing to N26.80 on November 4, the opening day, marking a 7.6% premium above the issue price. As of November 18, the share price had increased further, trading 9.6% above the issue price.

This marks a continuation of the company’s strong performance, with this year’s average share price at N25.75, compared to a five-year average of N14.59.

Strategic Objectives for the N149.56 Billion Proceeds

Strengthening Capital Adequacy
A significant portion of the proceeds, N103.12 billion (68.95%), will bolster First Bank’s Capital Adequacy Ratio (CAR). Allocations include N77.34 billion for corporate lending and N25.78 billion for retail lending. The bank reported a CAR of 17.75% in H1 2024, and this additional buffer will enhance its resilience against financial shocks and compliance with CBN regulations.

Expanding Lending for Profitability
FBNH plans to leverage the capital to grow its lending portfolio, which has already shown impressive results. Loans and advances increased by 72% year-on-year to N8.61 trillion in 2023 and reached N12.73 trillion by September 2024. Consequently, interest income rose by 165%, totaling N1.633 trillion in the first nine months of 2024, with 67% of this income derived from loans and advances.

However, the bank faces a rising cost of risk, which climbed to 2.70% in the first nine months of 2024 from 3.30% in 2023, reflecting heightened credit risk.

International Expansion and Revenue Diversification
The rights issue allocates N29.46 billion (19.7%) to expand FBNH’s international operations. This move aims to diversify revenue streams, reduce reliance on Nigeria’s economy, and mitigate risks associated with currency fluctuations and commodity price volatility.

Market Position and Long-Term Growth
By strategically deploying these funds, FBNH aims to enhance profitability, strengthen market leadership, and drive its market capitalization beyond N1 trillion, provided the share price remains steady or appreciates post-issuance.

Opportunities for Shareholders

Discounted Share Price
Shareholders can acquire new shares at N25, below the year’s average price of N25.75, and significantly lower than the 52-week high of N43.95 recorded in March 2024. This offers an attractive entry point with potential unrealized gains.

Mitigating Short-Term Dilution
While the rights issue will expand FBNH’s equity base to 41.88 billion shares, potentially impacting share price in the short term, the bank’s robust earnings growth could offset this. For instance, profit after tax (PAT) surged 126% year-on-year in the first nine months of 2024 to N533.88 billion, underscoring its ability to sustain profitability.

Enhanced Book Value
FBNH’s book value per share increased to N72.30 in September 2024, up from N38.30 in September 2023, reflecting improved shareholder equity.

Challenges and Risk Considerations
The rising cost of risk poses a key challenge, with provisions for non-performing loans potentially eroding profitability. Managing credit risk effectively will be critical to sustaining growth and delivering long-term value to shareholders.

Conclusion
FBN Holdings’ rights issue presents a compelling opportunity for shareholders to reinforce their stake at a discounted price while positioning for future growth. If the bank successfully manages credit risk and deploys the proceeds strategically, it is well-placed to enhance profitability, strengthen market leadership, and create enduring shareholder value.

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