FBN Holdings Launches N149.56bn Rights Issue

FBN Holdings Plc (FBNH), a leading financial institution in Nigeria, has announced the launch of a rights issue offering of 5,982,548,799m ordinary shares at N25.00 per share.

The initiative, which aims to raise a total of N149.56 billion, reflects the bank’s strategic response to regulatory requirements while bolstering its financial health and positioning it for sustained growth in an increasingly competitive banking landscape.

The rights issue offers existing shareholders the entitlement to one new share for every six shares held as of October 18, 2024. The initiative has already gained traction in the market, with FBNH’s share price closing at N26.80 on November 4, 2024—7.6% above the issue price—and rising further to 9.6% above the issue price by November 18.

FBN Holdings has outlined a clear strategy for deploying the proceeds of the rights issue to address critical areas of its operations. A significant portion, amounting to N103.12 billion (68.95%), will be allocated to improving the Capital Adequacy Ratio (CAR) of First Bank of Nigeria Limited, its flagship subsidiary. This includes N77.34 billion earmarked for corporate lending and N25.78 billion for the retail segment. By bolstering its CAR, which stood at 17.75% as of the first half of 2024, FBN Holdings aims to create a buffer against financial shocks and comply with the Central Bank of Nigeria’s (CBN) regulatory requirements. This move is especially critical given Nigeria’s high-risk environment characterized by currency fluctuations and inflationary pressures.

Another key focus of the rights issue is expanding the bank’s lending activities. Over the past years, FBN Holdings has demonstrated remarkable growth in this area, with loans and advances rising by 72% year-on-year to N8.61 trillion in 2023 and further reaching N12.73 trillion by September 2024. This expanded lending capacity has significantly contributed to a 165% surge in interest income during the first nine months of 2024, totaling N1.633 trillion, with 67% of this derived from loans and advances. However, this growth comes with heightened credit risk, as reflected in the bank’s cost of risk, which rose by 35% to 2.70% in the same period. While the increased lending capacity is expected to drive profitability, effective management of credit exposure will be critical to safeguarding shareholder value.
To diversify its revenue base and reduce reliance on the Nigerian economy—susceptible to currency and commodity price fluctuations—FBN Holdings has allocated N29.46 billion (19.7%) of the proceeds to expanding its international operations. By leveraging its global presence, the bank aims to mitigate domestic risks and create stable income streams, enhancing its resilience in the face of economic volatility.

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LEADERSHIP reports that the rights issue offers existing shareholders a unique opportunity to strengthen their holdings at a discounted price of N25.00, which is below the year’s average share price of N25.75 and significantly lower than the N43.95 52-week high recorded in March 2024. This provides an attractive entry point with potential for unrealized gains if market sentiment remains favourable.

While the increased equity base—rising to 41.88 billion shares—may temporarily impact the share price as the market adjusts, FBN Holdings’ consistent profitability and growth trajectory suggest a positive outlook. If the bank sustains its current earnings momentum, analysts project its market valuation could exceed N1 trillion, driven by effective utilization of the rights issue proceeds.

The proceeds from the rights issue, allocated to boosting lending capacity, fortifying international expansion, and enhancing digital infrastructure in a competitive market, could drive sustained profitability and market leadership.

Overall, the rights issue appears to be a compelling opportunity for shareholders to benefit from discounted shares and position themselves for future growth.

However, the increased cost of risk is a factor that requires careful attention. With the rising cost of risk reflecting the growing exposure to credit risk in the bank’s loan portfolio, there is potential for higher provisions for non-performing loans (NPLs).

This could reduce profitability in the short term and affect the anticipated returns from the rights issue if the bank’s expanded lending leads to higher defaults or impairments.
That said, shareholders who participate stand to gain from both immediate value opportunities and the bank’s strengthened market position, assuming that the bank can effectively manage credit risk and maintain its profitability trajectory.

The FBN Holdings rights issue represents a pivotal moment for the bank, providing both immediate and long-term benefits to shareholders. By strategically addressing capital adequacy, lending expansion, and revenue diversification, the bank is well-positioned to maintain its leadership in Nigeria’s financial sector. Shareholders who participate in the offering stand to gain from discounted shares and FBN Holdings’ strengthened market position, assuming effective risk management and continued profitability.

This rights issue is more than a financial exercise—it is a roadmap for sustainable growth and resilience in an ever-evolving economic landscape.