With a proposed issue price implying discounts of 12% and 17% to the 60-day and 90-day average share price, respectively, Guinness Nigeria’s management today announced a rights issue price of N58.00. The issue is also priced at a 14% discount to yesterday’s closing price of NGN67.40. The new shares will be allotted at a ratio of 5:11 implying the creation of 684.5m new shares. The qualification date for the Issue is today, Wednesday 15 March 2017.
It is understood that management intends to use the proceeds of the issuance to pay down existing debt. The rights circular also creates the provision for the parent company (Diageo) to use its FX lending to the Nigerian business to subscribe for its portion of the rights; and also take up the rights of other shareholders unwilling to stake more money in the business.
The announcement looks positive, but while the issuance helps the company improve its balance sheet flexibility and EPS volatility by swapping debt for equity, Guinness still battles with strong competition in the beer market; waning demand for its premium and mainstream brands; and risk of further margin squeeze on further currency depreciation.