The Agricultural Development Bank (ADB) Limited is to recapitalise to GH¢585.1 million, well in excess of the GH¢400 million required of banks by the Bank of Ghana (BoG) before December 31, this year.
The bank is hoping to secure shareholders’ approval for a renounceable rights issue that will enable it to raise GH¢310 million in fresh capital.
With GH¢275.1 million already in stated capital, a successful injection of GH¢300 million will increase the ADB’s stated capital to GH¢585.1 million — about 46.3 per cent above the central bank’s new minimum capital requirement.
A banking consultant, Dr Richmond Atuahene, said this should put the bank, which was listed on the Ghana Stock Exchange (GSE) in 2016, on a better position to compete for big ticket transactions capable of boosting its balance sheet.
“The high capital will mean that their net worth has gone up and when you look at the law, it says that you can only lend 25 per cent of your total capital to one customer.
“So, if they have big capital, then they can do big ticket deals,” Dr Atuahene, who specialises in corporate governance, added.
A motion on ADB’s renounceable rights issue, which refers to the sale of additional shares to existing shareholders on discount, is due to be tabled before shareholders on July 18 when the bank holds its annual general meeting in Accra.
In the notice to shareholders, the bank said an approval of the motion on capital raising will also authorise the board of directors to “use other capital raising methods to raise the needed capital to cover any shortfall that may result from the rights issue.”
It will further authorise “directors, subject to applicable rules, to determine the modalities of the renounceable rights issue and any other capital raising methods that may be used in the event of a shortfall arising from the rights issue.”
A shortfall in capital will only arise if existing shareholders fail to take up their rights — buy additional shares offered them under the renounceable rights issue.
Should that happen, the exercise allows existing shareholders to renounce their rights to non-existing shareholders and that will lead to a dilution of the former’s stake in the bank
On what methods were available to the bank should the renounceable rights issue fail, an investment banker and Head of Corporate Finance at Strategic African Securities (SAS) Group Finance, Ms Thelma Maclean, said in a separate interview that the board of directors could look for a strategic partner to invest in the bank.
“They can look for a private equity (PE) firm to invest in them and they could also look for a strategic partner or probably, they could do both,” she said.
After successfully listing in 2016, the shareholding structure of ADB has been in dispute.
Although the SIC Financial Services Limited (SIC FSL) owns 10 per cent of the bank, the Belstar Capital Limited, which also holds 24 per cent of ADB, says it has encumbered the former’s shares for defaulting in the repayment of a loan.
The loan – GH¢61 million – was used to purchase the shares. The financial arrangement between the two companies allowed the shares to be used as collateral.
Thus, without the SIC FSL’s 10 per cent, the ADB will become a majority privately-owned bank, with 58.2 per cent in the hands of private sector investors, including the Belstar Capital.
However, with it, the bank will remain state-owned with 51.8 per cent in the hands of government and other quasi state entities.
Two investment bankers, Mr Michael Cobblah and Mrs Dorithy Ahiati, said in separate interviews that the renounceable rights issue presents an opportunity for both sides to dilute their stakes or keep them.
Mr Cobblah, who is also the Chief Executive Officer of C-NERGY said it was in the interest of all shareholders to pick up their rights to further the course of their objectives prior to buying the shares during the public offer in November 2016.
“However, if their original objectives of buying during the IPO have changed, then they can waive their rights to be diluted.
“Alternatively, if the rights are discount to market, they can still pick up their rights and later offload at market price to make some decent return on their investments,” he added.
Mrs Ahiati said she wondered if “it is in the best interest for government to control the bank.
“We divested government interest in state-owned enterprises (SoEs). Do we want to go back?
“Do governments excel in business? Elsewhere, governments focus on governing and leave business to the private sector,” she said.