Holdco Listings: Were Shareholders Cheated?

13 Feb 2013

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 NSE DG, Oscar Onyema

In furtherance to effecting their Scheme of Arrangements, some banks recently listed their respective holding companies on the Nigerian Stock Exchange (NSE), Eromosele Abiodun examines the controversy surrounding the development

Not too long ago Ecobank Transnational Incorporated (ETI) embarked on a process called share split or reconstruction. Although many shareholders were not carried along, the company explained that the process helped it to align with the situation in the three Exchanges it is listed, as regards pricing.

Recently some banks reconstructed their shares hiding under the requirements of the Central Bank of Nigeria (CBN) that any commercial banking group that wishes to keep its non-banking subsidiaries should adopt Holding Company (Holdco) structure.

As a result, the shares of First Bank of Nigeria Plc and Stanbic IBTC Bank Plc were delisted from the Daily Official List (DOL) of the Nigerian Stock Exchange (NSE), while their respective holding companies – FBN Holdings Plc and Stanbic IBTC Holdings Plc.

On its part, United Bank for Africa Plc had its commercial banking business of the old UBA Group listed while two separate firms, UBA Capital and African Prudential Registrars Plc, were listed; having adopted a mono-banking structure.

The listing means the three banks now have a new share structure with many of their shareholders not knowing what impact the listing had on their holding.
A breakdown of the transactions as they affect the shareholders of the former banking groups revealed different ramifications for their shareholders.

New Share Structures
For instance, Stanbic IBTC Holding Plc provides for the cancellation of four out of every five shares held by the bank’s shareholders, with each bank shareholder receiving 50 kobo for each cancelled share, being at par value of such holdings.

THISDAY findings showed that each of the bank’s shareholders were left with one ordinary share in the bank for every five (1:5) previously owned. Accordingly, the share capital of the Bank was reduced by a total of N7.5 billion. The shares of Stanbic IBTC Holdings Plc were listed at N13.03 per share. Stanbic IBTC Holding, in a statement, said a payment of 50 kobo will be given on the cancelled units.

However, the FBN Holding Company structure does not change the rights and ownership of existing shareholders of First Bank of Nigeria Plc.

Existing shareholder’s holding has been migrated to FBN Holdings Plc in exchange for receiving ordinary shares in FBN Holdings equal to the number of shares they held in First Bank immediately before the effectiveness of the restructuring. This means one share of FBN HoldCo for one share of FBN previously owned.

All the fully-paid shares of First Bank were transferred to the newly listed FBN Holdings Plc, leading to the listing of 32.63 billion ordinary shares on behalf of FBN Holdings Plc on the floors of the NSE. FBN Holdings shares were listed at a price of N15.05 per share. The restructuring means that former shareholders of First Bank retained the same number of shares in the new FBN Holdings Plc. FBN Holdings Plc has 4 direct subsidiaries with 9 indirect subsidiaries.

UBA Plc was listed at N4.26 per share. In accordance with the time set out in the scheme, both UBA Capital Plc and Africa Prudential Registrars Plc have been listed on the NSE January at N1.16 and N1.59 respectively, while Afriland Properties Plc will be listed at a future date.

UBA Capital consists of the non-commercial banking and capital market businesses of the old UBA Group; UBA Asset Management Limited, UBA Trustees Limited, UBA Stockbrokers Limited, UBA Metropolitan Life Insurance Limited and UBA Insurance Brokers Limited. Africa Prudential Registrars Plc will retain the share registration business of the old UBA Group.

On the new holding company structure, UBA's executive director, Mr. Emmanuel Nnorom, explained that existing shareholders in UBA Plc will have 60 per cent of their holdings reduced by way of cancellation, in exchange for 100 per cent ownership in UBA Holdings Plc.

He added that the shares of UBA Plc will be simultaneously increased by 60 per cent and allotted to UBA Holdings Plc, so essentially, existing shareholders of UBA Plc will still own UBA Plc 100 per cent under the new arrangement, just that 40 per cent will be direct and 60 per cent of their holding will be indirect; that is, via UBA Holdings Plc (the Holdco).

Nnorom added that UBA Plc will transfer its ownership in UBA Africa Holdings Limited and UBA Capital Holdings Limited to UBA Holdings Plc, noting that, post-scheme, existing shareholders will own the four listed entities - UBA Holdings Plc, UBA Plc, Africa Prudential Registrars Plc and Afriland Properties Plc - 100 per cent with only the 60 per cent stake in UBA Plc being indirect, that is, via UBA Holdings Plc.

A breakdown of the new shareholding structure, he explained, will be such that for every 165 shares held in UBA Plc, eligible shareholders will receive the following number of shares in the entities that will emerge on completion of the scheme: 66 ordinary shares in post-scheme UBA Plc (40 per cent); 99 ordinary shares in UBA Holdings Plc (60 per cent); 5 ordinary shares in Africa Prudential Registrars Plc; and 5 ordinary shares in Afriland Properties Plc.

CEOs Explain
While some shareholders have expressed disaffection with the approach taken by most of the banks, including those yet to be listed, the banks CEOs see the effort as a better deal for shareholders. For instance, Managing Director, First Bank of Nigeria Plc, Bisi Onasanya, believed FBN’s arrangement present a better deal for shareholders, “Especially as they will get equal proportion of their shares in the new holding company.”

“The bank will off-load First Registrars and some other subsidiaries, while a holding company will be formed and all the existing subsidiaries, including First Bank, will become a subsidiary of that company.

“The listing of the holding company will pave way for the delisting of First Bank Nigeria plc. Shareholders will get equal proportion of their shares in the holding company when it is listed, while ensuring that the delisting will be conducted in a manner that is transparent and fair to the existing shareholders of First Bank,” he stated.

GMD/CEO, UBA Plc, Mr. Phillips Oduoza, believes UBA’s new structure is the way to go in the new policy regime, “Given our exponential growth and investments across Africa.”

“We are beginning to derive significant values from these investments hence the decision to have a HoldCo that will keep our entire bank and non-bank subsidiaries within the group,” he said.

Chief Executive Officer, Stanbic IBTC Bank Plc, Mrs. Sola David-Borha, listed the benefits of the new structure, saying it will enable shareholders benefit from the entire business. 

According to her, “Re-organising under HoldCo will ensure that shareholders retain the same exposure to the financial services that they have currently to enable the bank provide end-to-end financial solutions to its clients in line with its vision.”

David-Borha added that the holding company structure is consistent with the group-wide approach of the Standard Bank Group, which would allow the various subsidiaries to call on the group-wide expertise of the parent model.

She noted that the HoldCo will ensure that the commercial banks retail depositors are not exposed to the risks associated with the non-banking activities of the remainder of the group, and that all customers of Stanbic IBTC and its subsidiaries will continue to enjoy the services currently provided through the other subsidiaries by keeping all existing lines of business, “and so the employee base would not be affected adversely.”

To her, the proposed reorganisation will have the following features:  the transfer of subsidiaries, share cancellation, reorganising of capital, exchange of post-cancellation shares for HoldCo shares and delisting, and listing.

Controversy Galore
While many shareholders confuse what happened in the banking sector with share split or share reconstruction, the reality is that they are two different process aimed at achieving different purposes.

For example, the Holdco structure enabled banks to reconstruct their shares so as not to give too much to shareholders. For emphasis sake, share reconstruction involves reducing the number of issued shares to help a company’s market price, while share split help increase a company’s outstanding issued shares and reduce the price.

This is primarily because as the price of a stock gets higher, some investors may feel the price is too high for them to buy, or small investors may feel it is unaffordable. In the case of ETI, the price moved from N340 to N47.00.

On the other hand, Ecobank Nigeria Plc’s share reconstruction moved its share price from N6.50 to N27.00 while Platinum-Habib Bank Plc (now defunct) that was in 19th position (in market capitalisation), moved up to 18th position with a market value of N115.51 billion after its share reconstruction in 2007.

A total of 6,435,024,933 shares of the bank were admitted on the Daily Official List of the NSE at N16.29 per share, following the conclusion of its share reconstruction. Meanwhile, experts believe share reconstruction is a way of management running away from being caught in the web of low returns on capital or delivering and creating value for shareholders by reducing the number of shares in their stock.

Stock Split
A stock split is a corporate action that increases the number of the corporation's outstanding shares by dividing each share, which in turn diminishes its price. The stock's market capitalisation, however, remains the same, just like the value of the N100 bill does not change if it is exchanged for two N50s. For example, with a two for one stock split, each stockholder receives an additional share for each share held, but the value of each share is reduced by half: two shares now equal the original value of one share before the split.

Share reconstruction on the other hand is the reduction of the number of shares in a company's issued share capital without any reduction in the market value of the shares. For example, a company with 10 billion units of ordinary shares of 50kobo each with a market price of N5.00 at the stock exchange, can decide to reconstruct two shares into one.

This will reduce the company's number of issued share capital from 10 billion units to 5 billion units but will increase the market value on the stock exchange by two times N5.00 i.e. N10.00 per share, on the stock exchange. Nearly all the banks that had a union of more than three have reconstructed their shares.

Tags: Featured, Nigeria, Business, Larry Ettah, Oscar Onyema

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