Zenith bank has commenced seamless steps at meeting the new capital requirements of N500 billion with the announcement of a Hybrid Rights Issue and offer for subscription, aiming to raise about N290 billion.
Analysts say, with the Bank’s current issued and fully paid share capital of N15.698 billion and a share premium of N255.047 billion, the Bank requires about N229.225 billion to meet this requirement.
This is even as they are expecting over subscription, following stellar performances of the tier one lender over the years.
Besides meeting the CBN’s new minimum capital requirements, the offer prospectus indicates that undertaking the offers will also enable the Bank to make further investments in its information technology infrastructure and provide additional working capital to support its expanding operations.
Under the IPO, the bank is offering
5.2 billion ordinary shares at N36.50 each, available to the public. Applications must be for a minimum of 250 ordinary shares and multiples of 250 ordinary shares thereafter.
For the Rights Issue, it is 5.2 billion ordinary shares at N36 per share for existing shareholders.
The offer, which opened on August 1, 2024, is expected to close on September 9, 2024.
The implication is that the offer presents good value for investors and existing shareholders, anchored on the banks’ historical excellent market performance.
The current share price provides an opportunity to shareholders to acquire additional shares at a favourable rate, especially with the rights issue priced at N36.00, below the 52-week high of N47.19.
On a longer term, over the past five years, the share price has grown by about 57% taking the bank as the second most capitalized bank on the NGX with a market capitalization of N1.130 trillion
The Bank grew its shareholders’ funds from N20 million in 1990 to N2.32 trillion as of December 2023.
In 2023, Zenith Bank became the most profitable listed bank on the NGX, with a pre-tax profit of N795.962 billion.
Infact, while the bank has yet to release its Q2 2024 results, the first quarter results indicate that it has already achieved approximately 40% of its 2023 pre-tax profit, indicating strong financial performance and momentum.
Other core areas that the bank has excelled include the fact that it reported the highest net interest income of N736.182 billion in 2023, driven by substantial interest income of N1.14 trillion, with loans and advances contributing about 59%. The bank increased its loans and advances by 63% to N6.6 trillion.
According to the offer prospectus, the bank plans to allocate about 37% (N36.74 billion) of the IPO proceeds to loans for corporate, SME, and retail sectors. While this could boost earnings, it may also increase the bank’s risk profile.
The bank is equally geared for expansion into other markets with the offer proceeds. It plans to allocate 35% (N34.7 billion) of the IPO net proceeds of N99.3 billion for expansion into other markets.
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This strategy looks promising considering the contributions of its offshore subsidiaries to the group’s profit in 2023. At the end of the 2023 financial year, Zenith Bank had a presence in the UK and three other African countries: Ghana, Gambia, and Sierra Leone.
For the shareholders that the bank maintains mutually beneficial relationship, the rights issue price of N36.00 is aligned with the current share price and slightly below this year’s average price of N36.92, providing them additional shares at a fair price relative to the current market and at a small discount compared to the average price for the year.
The IPO price of N36.50 is slightly higher than the current price, it is below the average price for the year and the 52-week high price. This suggests that while the IPO price is somewhat elevated compared to recent prices, it still offers potential value to new investors, as it is lower than the average price observed over the year.
For investors, this means the IPO could present an opportunity to acquire shares at a competitive price relative to the longer-term average, potentially leading to capital gains.
The bank’s expansion plans and strategic use of offer proceeds could further boost growth prospects, increasing investor confidence.
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