HF share defies dilution prospects as investors eye rights

Housing Finance (HF) share price has shrugged off dilution fears as investors scramble to tap the Sh3.5 billion rights on sale.

The share price rose 7.7 per cent in the five days to Sh48.75 last Wednesday, with 6.6 per cent price increase experienced on Tuesday when the company published a timetable for the significantly discounted rights.

In last Friday’s trading, the share closed the week at Sh48 with an intra-day high of Sh49.

The mortgage lender is selling an additional 116,666,667 shares to existing investors at Sh30 per unit, a discount to the reference Sh50 market price.

Investors have been offered a share for every two held, meaning the dilution would ordinarily be expected to depress the price on the Nairobi Securities Exchange quite substantially.

Analysts say the good performance is due to high demand and the expectation that the company would grow, thereby giving higher dividends than is currently the case.

“Investors see value in the stock going forward. They are fighting to get a piece of the company so as to position themselves for allocation of more shares in the rights issue,” said Geoffrey Maina, a research analyst at Old Mutual Securities.

READ: Housing Finance prices Sh3.5bn cash call

Mr Maina said the free floating shares of the Housing Finance (HF) is small, amounting to about 40 per cent of the total, with the insurance and investment firm Britam alone holding 46.08 per cent. Britam has confirmed it will take up its rights.

“The fact that the free float is small has also contributed to the demand outstripping supply and therefore the higher share price even when dilution is set to take effect with the rights issue,” he said.

But Mr Maina noted that with the low free float, foreign investors are not keen on the share since they are out to buy many shares available in the large companies such as KCB Group, Equity and Safaricom.

Standard Investment Bank (SIB) said local investors are driving the demand for the mortgage lender’s share after the announcement of the rights issue.

“Following news of a Sh3.5 billion rights issue, HF gained 6.6 per cent on local investors’ interest,” said SIB in its latest update on the markets.

In order to be eligible, an investor must ensure that they are in the register of shareholders by January 28, meaning there are only a few days to the deadline.

Britam could also increase its shareholding should it opt to buy whatever rights not taken by the other investors.