WAPIC Insurance Nigeria: When did shareholders now mean bag holders?

Dear Readers:

                      Rights issues have become more popular in Nigeria after the 2008 - 2009 equities market crash in Nigeria.  As companies became more wary of public offers and the extra scrutiny that now came with it, rights issues became the lesser evil.  The drastic decline in stock prices across the market also made public offers less appealing to investors regardless of company clout.  Companies resorted to rights issues as the best way to still raise equity without being overly scrutinized and increase chances of a successful capital raise from within (existing shareholders.)  How hard should it be to convince existing shareholders to buy more shares of a company they already own at a discount to the current market price?

Rights issues are supposed to serve as an interim reward to shareholders; while, giving them a chance to maintain their ownership stake in the company.  The company they own also has a formal path to raise needed equity capital.  This supposedly interim reward of issuing rights has apparently now become a sort of permanent punishment.  Two companies in 2019 have decided to use rights issues to punish and make a mockery of existing shareholders.  The first listed company is WAPIC Insurance and the second listed company is NPC Microfinance Bank.  We will focus on the company that its rights issue is already in progress.  NPF Microfinance Bank still has a chance to make things right before the commencement of its rights issue which all indications known to me has not yet commenced.  

WAPIC Insurance is currently raising N5.93B through the offering of 15.6B new shares to existing shareholders in the ratio of 7 new shares for every 6 presently held at a price of N0.38 (thirty-eight kobo).  The rights issue to raise fresh capital from existing shareholders commenced on November 20, 2019 and will conclude on December 31, 2019.  As at Friday, December 13, 2019, Wapic Insurance's stock price is N0.33.  Wapic Insurance through its board is asking existing shareholders to pay a 15% premium to the current market price of the company to buy 17% more shares than they currently own!  Existing shareholders are being asked to more than double their existing shares and pay a 15% premium to maintain their ownership stake in the company.  

This act is an undiluted mockery of the Nigerian financial markets, an attempt to steal from existing shareholders and a reflection of a board that has replaced its conscience with savage turpitude.      

People keep lamenting about the state of the Nigerian stock market from an index performance standpoint.  As at December 13, 2019, the Nigerian stock market is down 15.6% and is set to close the year negative for the fifth time in the past six (6) years (2017 being the lone exception.) These are the kind of selfish acts that taint the Nigerian stock market and aid in depressing prices (Dangote Cement is trading at a 7% discount to its listing price nine (9) years ago.  Suddenly, a buyback is in the works to arrest the situation and stave off the anger of multiple large stake investors that bought shares at prices in excess of N209.00.

When the market refuses to reflect the fair value of a company at any point in time, a confident board will approve a share buyback scheme to boost demand in the company's stock price and raise its price steadily over a short-period of time (typically under 12 months).  "Since investors do not appear to realize how cheap our shares are, we do and will gobble them up."  This reduces shares outstanding and also equity and encourages lukewarm investors to join in as we all seek profit opportunities.  

Despite the significantly depressed share prices in the Nigerian stock market, listed companies have refused to buy back their shares.  What kind of signal are you sending to investors?  They keep pleading with foreign investors and pension funds to buy their stock while they hang around on the sidelines with arms akimbo.  Who's the fool?   

Irony of Life!  Twelve years ago, the Chairman of WAPIC Insurance was the Managing Director of Access Bank.  A few months to the beginning of the public offer at a price of N14.90, there was a share reconstruction that doubled the share price of Access Bank.  Then, approximately two months to the suspension of the bank's stock price, the stock price of Access Bank rose from N11.69 to N19.32, (a rise of 65.26%) with no resistance in sight.  Let us call this an unofficial share buyback.  

Twelve years later, the same individual is the Chairman of the board of WAPIC Insurance (a company he is also a majority owner) and approves a rights issue and sets a price that is higher than the stock market believes the company is worth on a per share basis.  So why the change of heart?

I lay the blame fully at the hand of the Securities & Exchange Commission (SEC) who continues to oversee the Nigerian financial markets by protecting/pandering to the powerful few instead of the most vulnerable many.  SEC should not approve any rights issue that the price is higher than the market price at the time of application.  Secondly, if the market price declines below the rights price once the issue opens,  the company will have to issue a special dividend to qualified shareholders for the difference between the market price on rights issue approval date and the average market price throughout the rights issue open period.  This special dividend will have to be paid before SEC will approve the rights issue proceeds for disbursement and use by the listed company.  

Nigerian listed companies beware; I am on the lookout for this.  The next one I encounter I will be back here again and elsewhere to name and shame.  Do not do choose rights issue prices above the market price of your company.  

                                           I need to cut this short; bear with me   

Barely a month ago, EXPEDIA (EXPE) released a poor (relative to expectation) quarterly earnings release on the Nasdaq.  Over the next one month, the stock hit new 52-week lows multiple times as investors reacted negatively and dumped the stock.  The majority shareholder was upset with the steep price decline in the four weeks post earnings release and overall company direction.  He forced the resignation of the CEO and the CFO, then, he announced a 20 million share buyback program in addition to the 9 million shares already slated for repurchase.  He said  he will purchase more shares as "a tangible sign of my faith in and commitment to" the company's future."   Once completed, Expedia board would have purchased back 18% of current shares outstanding (let that sink in). Since the announcement, Expedia's stock price has risen approximately 20% in less than two weeks and insider buying is in full swing.  

What evidence reflects a tangible sign that the board of WAPIC Insurance has faith in and commitment to the company's future?  The board members of WAPIC Insurance know what they need to do.  They have two weeks left to find their conscience and right their wrong or continue down the (apparently) chosen path of turpitude that leads to perdition.  

Buy up the shares of WAPIC Insurance aggressively and move the market price a respectfully significant distance above the N0.38 rights price.  At some point in 2019, the market deemed the company to be worth N0.47 (forty-seven kobo) per share.  Any action other than this will reflect that this rights issue is not being undertaken for the reasons publicly disclosed in the prospectus.  The Chairman of the board of WAPIC Insurance may very well want to use the ongoing rights issue to increase his ownership stake in WAPIC Insurance by alienating existing shareholders through the terms of the rights issue.  Shareholders will abandon their expensive, worthless rights, leaving vested interests to mop up and take a larger stake in the company.   

Posterity is never prejudiced; nobody knows tomorrow.  Do not get too comfortable with TODAY.

Nigerians KNOW the right thing to do MOST times; they just REFUSE to rise above their personal interests time after time for the good of the 'rest of US.'

                                       

                                           TELL OTHERS TO TELL OTHERS