Investment firm TransCentury will face a hard task in its bid to raise Sh2 billion from a rights issue after its stock fell substantially below the price at which it will sell the new shares.
The company will offer 1.87 billion new shares at a price of Sh1.1 each starting December 29.
This represented a small discount compared to the then prevailing share price of Sh1.11 on November 15 when the details of the cash call were first disclosed.
TransCentury’s stock however fell below the rights price on November 18 and has traded in a range of between Sh0.79 and Sh1.07 since then.
This means that it is cheaper for investors to buy the shares on the open market compared to the right issue process.
The cash call price now represents a premium of 37 per cent compared to yesterday’s trading price of Sh0.81.
Buying shares on the market is particularly attractive for small investors whose demand can be met through the daily trading volume.
TransCentury has been moving tens of thousands of shares in recent weeks, with the highest volume of 95,000 shares worth Sh79,800 recorded on August 12.
The cash call is open to existing shareholders who usually have the option to buy their allocation of new shares at the set price, snub the offer or transfer the rights to acquire the new stock to other investors.
Buying shares on the market rather than through the rights issue has the potential to limit the company’s ability to hit the target of Sh2 billion, a large part of which is earmarked for debt repayment.
Investors with significant stakes are however likely to opt for the rights issue to defend their ownership in the firm since the volumes traded are small relative to their interests.
TransCentury’s anchor shareholder is private equity firm Kuramo Capital with a 24.99 per cent stake, with the rest of the ownership fragmented among about 1,800 individual and institutional investors.
The cash call is set to test investor faith in the company which holds a negative equity position of Sh9.07 billion.
In September, the company published its financials for the six months to June 2021, showing that its net losses in the period declined 47 per cent to Sh764.3 million.
This was largely due to a revenue jump of Sh536 million to Sh2.54 billion, which the firm attributed to the improved performance of its trading arm AEA Limited and Tanelec Tanzania.
Listed firms have rarely offered rights issues as an option to raise new capital in recent years, reflecting the general decline in share prices in the market.
Companies have instead preferred to raise capital through debt and the sale of stakes to strategic investors.
Since 2016, only Crown Paints —in 2021— rolled out a rights issue, compared to 15 such issuances between 2010 and 2016.