The market value of Crown Paints has gone up by Sh4.2 billion since the firm issued a rights issue last year, helped by significant capital gains on the additional shares issued by the company in the cash call.
The firm’s market capitalisation, which stood at Sh1.85 billion before the rights shares were credited to the respective owner accounts on July 14, 2021, has risen to Sh6.18 billion.
The listed paint maker offered 71.18 million units through the rights issue at a price of Sh10 each, doubling its number of issued shares at the Nairobi Securities Exchange (NSE).
The firm’s shares are now trading at Sh43.40 each, giving the shareholders who took up the rights units a capital gain of Sh2.38 billion or 334 percent.
The older existing shares have also gained significantly since the introduction to the market of the new rights units, rising from Sh26 to reward their owners with a paper wealth gain of Sh1.24 billion.
The rights issue was deemed heavily discounted at the time of its announcement in October 2020, when the stock was trading at Sh42.50.
Even a price decline to Sh26 by the time the shares were vesting nine months later did not fully erode the discount.
Ideally, rights sales are followed by price corrections as the market adjusts to the dilution brought by the introduction of additional stock.
Some existing shareholders however snubbed the cash call, either selling on their rights to fellow owners or letting them lapse.
Shareholders applied for 64.2 million units under entitlement, leaving the balance of 6.9 million shares on the table which were then taken up by majority shareholders including Belize-based investment firm Barclay Holdings.
Barclay Holdings was thus able to widen its majority stake in Crown Paints from 62.05 percent to 66.68 percent through the additional units it acquired from the unclaimed rights.
Barclay and other big shareholders were however given an exemption from takeover regulations by the Capital Markets Authority (CMA), allowing them to raise their stakes without making an offer to buy out minority investors.
The impact of the rights sale was disclosed by Crown Paints in its 2021 annual report, which said that the offering raised the full Sh711.8 million the firm was targeting.