Listed Banks overcome market hiccups

The Initial fears that gripped banks listed on the Ghana Stock Exchange (GSE) that they might not be able to raise sufficient funds as they return to the primary markets has been discarded with investors showing their willingness to maintain their stake in financial stocks despite current challenges. Financial Intelligence’s close monitoring of on-going Rights Issue among three key universal banking institutions, Ecobank Ghana limited, CAL Bank and SG-SSB has shown signs of success.

In the case of Ecobank, FI sources indicate that there has been massive over-subscription, with most institutional as well as individual investors exercising their Rights.

Ecobank Transnational Incorporated (ETI)’s Rights, which it appropriately exercised, had already guaranteed the success of the Issue, as the parent company held close to 88 per cent stake in the company. Ecobank Ghana Limited had put on the market 28,597,122 million ordinary shares of no par value at GH¢2.78 per share in the ratio of one new share for every seven existing shares held. The offer which took place between October 2, to October 20, 2009 sought to raise additional capital of GH¢ 79.5 million to meet the regulator’s new capital requirement and to undertake expansion projects. The minimum amount to be raised for the offer to be declared successful is GH¢25 million. Full results of the offer are expected to be made public by the close of this week. Ecobank hoped to increase its stated capital to GH¢ 100 million, for which at its Annual General Meeting in March 2009, the board sought the permission of shareholders to transfer 4.1 million from income surplus account to stated capital account and to issue 40,306,250 shares credited as fully paid shares to shareholders of the bank on a pro-rata basis. CAL Bank Limited on the other hand put on the market 150 million ordinary shares of no par value at GH¢0.20 (20Gp) per share in the ratio of one (1) new share for every 1.1275 existing shares held. The FI has been told that the CAL Offer which took place between October 2, and 20 also has a greater chance for success. The bank had embarked on a road show in key European markets, where a number of foreign investors reportedly rooted for the stock, should shareholders renounce their rights.

Despite harsh market conditions, CAL which came to the market with an IPO price of GH¢ 0.20 in 2004 still trades at GH¢0.20, making it a favoured stock. SG-SSB’s offer ends on November 5, and the FI has already witnessed a number of passionate investors exercising their rights following the bank’s timely release of an impressive third quarter results.

The bank has put on the market 57,500,000 million ordinary shares of no par value at GH¢0.40 (40Gp) per share to qualifying shareholders in the ratio of one new share for every five shares held. Latest on the market is Standard Chartered Bank (SCB)’s 1,655,172 ordinary shares of nor par value at GH¢ 29 per share, in the offer which is scheduled for November 10 to December 1, 2009.

The Offer is to raise GH¢48 million to shore up the banks capital base. In view of SCB’s impressive dividend offer history, most analysts expect investors, both institutional and individual, to at least hold on to their stake. These success stories come as a sharp contrast to what several capital market and banking sector analysts had predicted with the eminent dry-up of investible funds on both the local and international markets following the financial crisis.

This paper had earlier reported of an uneasy calm among these banking institutions who could not receive early approvals for their Offers as a result of the absence of a board for the Securities and Exchange Commission (SEC) in the first six months of the year.

The offers as a result, had to run concurrently in the last quarter of the year, putting more pressure on limited investor resources. The banks have had to go to the primary market at a time average stock prices had fallen close to 50 per cent. With stocks already selling at huge discounts, most analysts had predicted the primary market might not after all provide a new attraction.

There is also the view that the market might not have hit the bottom yet, as a result of which investors could hold on to ‘a wait-to-see’ attitude.

Ghana’s banks have been in a desperate search for investor resources to meet the regulators new capital requirement before the December 2009 deadline for foreign banks, and the December 2012 deadline for local players. Under the directive, banks with local majority share ownership will have to attain a capitalization of at least GH¢ 25 million by the end of 2010 and GH¢60 million by 2012.

Failure to meet the deadline would see a bank miss the prospect of operating with a Class 1 banking license.

The new requirement of GH¢ 60 million is expected to deepen the lending capacity of the banking sector to participate in big ticket transactions and to provide long term financing support as Ghana strives to become a middle income economy. It has also been seen as a strategy to build up the country’s own financial services sector to fund future oil projects.

Even though some analysts had called for a much higher recapitalization requirement, the current figure could even likely trigger some consolidation in the sector as smaller unlisted banks, most of whom are seeking refuge in private placements, might experience some difficulty in boosting their capital. Foreign owned banks such as Guaranty Trust Bank, Intercontinental Bank and UBA have relied on the financial muscle of their parent banks to meet the new requirement in time and to remain in Ghana’s lucrative banking industry which currently consists of 27 players.