Recapitalisation: Banks’ Insiders Bid For Higher Stakes

 

Major insiders and directors have launched subtle moves to secure higher stakes in banks as the recapitalisation process gathers momentum.

Trading reports at the Nigerian Stock market have shown a surge in insiders’ transactions with most deals concentrated on banking stocks.

Regulatory reports by the Nigerian Exchange (NGX) at the weekend showed that two-thirds of companies that reported insiders’ acquisition of shares last week were banks, which accounted for the largest volume and value of insiders’ transactions. This was consistent with similar trends in recent weeks.

The banks’ shares were mostly being acquired by major shareholders, directors and senior management members and their relatives, who by virtue of their closeness to the banks, are classified as insiders under the extant rules at the capital market.

All recent bank-related insider dealings were for purchase of shares, rather than sale, forming a pattern of transactions that targets some major commercial banks.

Banks accounted for 66.7 per cent of total number of companies that recorded insiders’ dealings last week and half of the total number of reported deals.

A four-week review also showed similar trend of spike in insiders’ transactions on banking stocks.

Sources said major shareholders are taking preemptive moves in preparation for expected rights issues by banks.

Rights issue is traditionally pre-allotted on the basis of existing shareholdings and in most instances, offered at discount to existing shareholders.

A senior investment banker, who pleaded anonymity because of closeness to some transactions, said banks’ insiders were taking positions to benefit from the recapitalisation offers, through higher stakes or a tradeoff of the discounts on their rights.

Extant rules allow shareholders with pre-allotted rights to trade such rights at the prevailing market prices at the secondary market.

Rights issues feature prominently in the recapitalisation plans of the banks, with most analysts expecting existing shareholding structures to substantially determine the post-recapitalisation structure and control of several banks.

At the weekend, the Securities and Exchange Commission (SEC) Executive Commissioner (Operations), Mr. Bola Ajomale, said rights issues could account for a larger proportion of the more than N4 trillion new capital injection expected under the ongoing banking recapitalisation.

“The capital raising might go through the right issues process. Out of the six capital raised in the market this year, four are right issues,” Ajomale said.

NGX’s Acting Chief Executive Officer (CEO), Mr. Jude Chiemeka, noted that banks might show greater recourse to rights issue under the current recapitalisation.

“Right issues are one of the preferred means by which they would be seeking new capital injection to fulfill the apex bank’s requirement,” Chiemeka said. (