Sterling Financial Holdings Company has announced plans to seek shareholder approval for a ₦200 billion rights issue at its general meeting scheduled for June 24. The company aims to sell 40 billion ordinary shares to existing investors at discounted prices, contingent on shareholder consent.
Recapitalisation Needs for Subsidiaries
The rights issue is primarily driven by the need to meet adjusted recapitalisation requirements for Sterling Financial Holdings’ two banking subsidiaries: Sterling Bank and the Alternative Bank. According to the company’s 2023 annual report, Sterling Bank’s total qualified capital (including share premium and share capital) stands at ₦57.2 billion. As a national bank, it requires an additional ₦142.8 billion to meet the revised capital standards. Meanwhile, the Alternative Bank needs to secure ₦10 billion to fulfill its own capital requirements.
Strategic Capital Raising
Sterling Financial Holdings plans to leverage the Nigerian Exchange (NGX) to raise the majority of the required capital. “We are open to foreign sources of capital as an alternative, but with our shareholders fully committed, hence our preferred approach is rights issue, followed by private placement,” said an unnamed executive from Sterling Holdings. The company believes that tapping into the NGX will streamline communication with investors and facilitate the capital-raising process.
Utilization of Excess Funds
If the rights issue successfully raises ₦200 billion, Sterling Financial Holdings will have a surplus after meeting the capitalisation targets for its subsidiaries. This excess capital is expected to be channeled towards enhancing the company’s SME, retail, and digital banking operations. “We anticipate that they would keep their innovation curve steep and improve investment in establishing an even stronger identity among the young banking population,” stated Ikeoluwa Alabi, an investment research analyst at Afrinvest Consulting Ltd., in an interview with TechCabal.
Market and Investor Sentiment
The move to raise capital via a rights issue reflects Sterling Financial Holdings’ confidence in its shareholder base and the local capital market. By opting for a rights issue, the company not only secures the necessary funds but also reinforces investor trust and engagement. This approach is expected to bolster the company’s market position and support its long-term growth strategy.