The results could serve as a positive precursor to similar exercises on the market this year, two analysts with Databank and FirstBanC Financial Services told the GRAPHIC BUSINESS in separate interviews.

Messrs Benjamin Amoah-Adjei and Alex Boahen, who head the research departments at Databank and FirstBanC Financial Services respectively, said the success of the offer, although peculiar, could also motivate other listed banks to consider similar strategies, as the race by banks to recapitalise to GH¢400 million gathers momentum.

Already, Access Bank, which is 90.4 per cent owned by Access Bank Plc of Nigeria, has secured shareholders approval to raise a total of GH¢450 million through a combination of a bond programme and a rights issue on the GSE.

Proceeds of the offer, due to be undertaken this quarter, are to help support the bank’s operations and meet the BoG’s recapitalisation directive.

HFC’s capital

The two were commenting on the impact of a recent rights issue by HFC Bank, which ended on December 20, last year, with a subscription rate of 101 per cent.

On December 4, last year, the bank, which is due to be rebranded to Republic Bank Ghana Limited, started a rights issue, ostensibly to raise GH¢50 million for recapitalisation and expansion.

A circular from the bank said some 117 applications from qualifying shareholders subscribed for a total of 91.92 million shares, slightly above the offer target of 90.91 million.
The rights issue was handled by UMB Stockbrokers Ltd and HFC Brokerage Services Ltd.

Part of the circular read: “After fully allotting a total of 62.76 million entitlements and 28.14 million extra shares to qualifying shareholders, all the applicants received the shares that they applied for with the exception of Republic Bank, who will receive a refund of GH¢557,128.’’

Thanks to the exercise, HFC Bank has now successfully complied with the Bank of Ghana’s December 2017 dateline to undercapitalised banks to recapitalise to the initial GH¢120 million or be penalised.

The bank’s stated capital and total equity, including reserves, were last reported at GH¢96.2 million and GH¢170 million in September, 2017.

Improved profitability

Messrs Amoah-Adjei and Boahen said the results of the offer is a vote of confidence by shareholders in HFC Bank’s prospects.

Beyond that, Mr Boahen said the results “could have a positive implication for the whole banking sector,” especially banks listed on the GSE.

“It is positive in the sense that it means investors still have confidence in the prospects of banks. It could also mean that should listed banks decide to take similar exercises on the exchange, the interest will be good and they may just be successful,” he said, on January 2.

His counterpart with FirstBanC Financial Services, Mr Amoah-Adjei, explained that recent improvements in the bottom lines of banks could serve as further motivation for investors to take keener interests in banks this year.

“The truth is also that over the course of 2017, a lot of the banks have reported improved profitability and so going into 2018, it is likely that investor interest in the industry will be high,” he said, admitting that some banks were still recovering from the 2016 challenges.

Other determinants

The two analysts are also of the view that any future exercises on the capital market by banks will be determined by different circumstances.

They mentioned the shareholding structure of the bank, timing and price of the offer as some of the factors that could determine the success or otherwise of future exercises.

“If a bank decides to go the way HFC went by deciding to issue the rights at a significant discount, then fine, obviously, it will not have any difficulties. But if it wants to do the rights issue at or close to the trading price, then it might be a challenge, especially if another bank is doing another rights issue with a discounted price,” he said.

The share price for HFC Bank’s right issue was 55 pesewas compared to a trading price of GH¢1.39, as of November 22, when the offer was announced. This represented a discount of about 60.4 per cent.

Mr Amoah-Adjei further explained that banks with significant foreign interest could also have less challenges raising funds on the market.