As share price defies shareholders’ fears over Rights Issue
By Emeka Anaeto, Business Editor
UNILEVER Nigeria Plc, one of the oldest multinationals playing in Nigeria’s fast moving consumer goods (FMCG) market, was forced to investors’ conference call last week on the heels of its controversial Rights Issue. But the shares had impressive outing last week indicating that investors may be taking positions in view of the huge Rights’ price premium.
The company’s management discussed issues ranging from the FMCG market in Nigeria and the company’s market position as well as the Rights Issue.
Unilever is currently raising about N40 billion through a rights issue at the rate of 14 shares for every 27 shares held as at June 28 2017. The offer opened on August 1 and closes on September 8.
The Finance Director, Adesola Sotande-Peters, said the foreign exchange situation had improved massively. The company sources its foreign exchange from the inter- bank market and uses several banks. In order to hedge volatility, Unilever makes use of forwards and swaps.
On the Rights Issue Sotande-Peters explained that the severe difficulties in getting foreign exchange last year, forced the company to take a dollar denominated loan from its parent company and inter-company loans for the first time since its existence. The parent company will pay for its rights issue like every other shareholder, unlike some other FCMGs that converted loans into equity. Sotande-Peters also said proceeds from the issue will be used to pay back the dollar loan and increase its stock of raw materials, due to the new products, adding that the company is keen to pay off the loan to avoid the risk of a further devaluation of the Naira.
But a section of Nigerian shareholders have accused the board of directors, and indeed the parent company, Unilever UK, who are the majority shareholders stake of intending to use the Rights Issue to reduce Nigerian shareholders’ stake while increasing the core investors’ stake. They based their fears on likelihood that the minority shareholders would not take up their Rights as it is usually the case in most Rights Issues, thereby opening up the opportunity for the foreign core investors to mop-up the local investors’ shares.
In the event this happening, the company’s share float would diminish, a situation which would present regulatory delisting of the company from the NSE a fait accompli and making it a private business of the foreign investors.
Nevertheless, the management at the conference call, indicated that the FCMG space will continue to remain challenged as wages have not been increased to meet the galloping inflation. But despite this, Unilever sees opportunities for growth. The company has seen growth in the sale of Knorr cubes, and has made it available in smaller packs.
Unilever shares rose 6.0 per cent, the best performance week-on-week in the stock market, while year-to-date, the stock is up 14 per cent.