Shareholders of Guinness Nigeria Plc, yesterday approved the plan by the board to raise a total of N40 billion by way of rights issue to the existing shareholders.
Rights issue is an issue of shares offered at a special price by a company to its existing shareholders in proportion to their existing shares. In a rights offering, the subscription price at which each share may be purchased is generally at a discount to the current market price.
This is the first offer in the market for the year, and already there are scepticisms about the ability of the shareholders to fully subscribe to the offer, given the prevailing economic recession. This is particularly so given the very high inflation of about 18.5 percent and weakening purchasing power, thereby compounding the illiquidity in the stock market.
For Guinness, the additional fund will come in handy to pull it out from current misfortune, haven reported a pre-tax loss of -N4.4billion in 2016 largely driven by increases in net interest expense
The Guinness shareholders also authorised the directors to apply any outstanding convertible loan, shareholder loan, or other loan facility due to any person from the company towards the payment for any rights or shares subscribed for by such a person under the rights issue.
Guinness Nigeria, a subsidiary of Diageo Plc, had announced at the end of 2016, its intention to offer a Rights Issue as part of plans to optimise its balance sheet and improve its financial flexibility.
Speaking at the firm’s Extra-Ordinary General Meeting (EGM) held in Lagos on Tuesday, the shareholders stressed the need for the brewing company to ensure that the capital would impact on the financial performance of the Nigeria business and help mitigate the impact of increasing finance costs in its operations.
For instance, the former President, Independent Shareholders Association of Nigeria, Sunny Nwosu, said the rights issue was long overdue, urging shareholders to participate in it to enable them grow their dividend.
The President, Nigerian Shareholder Solidarity Association, Timothy Adeshiyan stressed the need for shareholders to take their rights to increase their holdings in the company.
“If you do not take the opportunity, the holdings of our technical partners will increase but if you want it to reduce, you have to take the rights.”
The Chairman of the company, Babatunde Savage, explained that the volatility of the economy has impacted negatively on the fortunes of the manufacturing sector.
Savage disclosed that Diageo, the parent company rescued Guinness with a soft loan to procure it’s raw materials, adding that the loan as of September 2016 stood at N9.8 billion.
“Some companies are closing down while others are retrenching their staff. To procure foreign exchange is a problem. Diegio gave us loan to procure raw materials in foreign currency and that is the advantage of being a multinational firm.
“We did an analysis of our five years cash flow and we decided that there was need for us to do a capital enhancement of the business. We would continue to ensure that there is fairness. The confidence is that we will fight for everybody. The money will be enough to get the necessary capital we required.”
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