Market Rally Boosts Prospects of Equities Capital Raising


Goddy Egene

The recent rebound in the Nigerian equities market has increased prospects of companies considering raising funds through public offering of shares to finance their expansion and other projects.

For more than three years that the market has performed negatively, companies moved away from raising funds through sale of shares to members of the investing public. The companies stayed away from equity capital raising due to fear of poor response from investors. Those who dared the equities market did so through rights issues, which, in most cases, recorded partial success. Most of the companies have been resorting to the domestic and international debt markets.

However, the rebound in the market that has led to a significant rally, making the market to record a year-to-date growth of 23.6 per cent as at Monday, has opened a window for companies to raise equity capital to boost their operations.

A top official of a leading issuing house in the market, who spoke to THISDAY, said some companies were already considering raising additional funds via equity capital.

“Because of the bear run that persisted in the market for a long time, some of the companies went for debt capital, which is very expensive compared to equity capital raising. However, the positive investor sentiments seen in the market in recent time is making some of them to consider issuing shares not only to existing shareholders but also to new ones,” the broker said.

According to him, if the bull-run continues for more months, some public offerings will be seen in the market soon.

Analysts at FSDH Research said recent developments show that confidence is returning to the Nigerian economy and the risks are waning.
The analysts explained that recent economic challenges and the high interest rate on debt securities in Nigeria had imposed limitations on companies’ ability to issue debt capital to fund expansion.

“As the economy is gradually exiting the current recession, there would be a need for companies to expand production capacities. Thus, the current rally in the equity capital market offers a great incentive for quoted companies to access the market to raise the needed equity capital for their expansion projects. As activities increase in the primary market segment of the equity market, the demand for debt capital may drop. Consequently, we expect the interest rate and yields on the fixed income securities to drop,” they said.

The analysts added that Nigeria recorded a favourable trade balance of N719.38billion in first quarter (Q1), 2017 from a trade deficit of N253.33 billion in Q1 of 2016.
According to them, the positive growth in the foreign trade statistics resulted in additional foreign exchange inflows for the country which bolstered the Central Bank of Nigeria (CBN)’s ability to support the current stability in the foreign exchange market.

“We expect foreign trade to remain favourable for Nigeria for the rest of 2017. This should support the value of the Naira and reduce the need to maintain high interest rate to defend the exchange rate,” they said.