Diamond Bank applies to raise N50.37bn through rights issue

Diamond Bank Plc last week submitted an application to the Nigerian Stock Exchange (NSE) to raise about N50.374 billion via a rights issue  as part of the bank’s capital raising exercise. Shareholders of the financial institution had recently given approval to the directors to raise additional funds.
Following the approval given by the shareholders, the Chief Finance Officer of Diamond Bank, Mr. Abdulrahaman Yinusa, had said the bank was in the process of filing  applications with the relevant regulatory authorities for  the rights issue.
The bank last Friday filed the application with the NSE for a rights issue of 8,685,145,863 ordinary shares of 50 kobo each at N5.80 per share. This will fetch the bank N50.373 billion (over $300 million).
Reacting to the development, analysts at Chapel Hill Denham said if the rights issue is successful, N50.374 billion will be added to the bank’s Tier-1 capital.
“In this case, we estimate that Diamond’s Capital adequacy ratio (CAR) will rise to  23.8 per cent  from 17.3 per cent in full year of 2013. The issue will imply a lower full year 2014 estimate earnings per share of N1.29 versus of our forecast of N2.06 and an return on average equity (ROAE) of 16.9 per cent versus our 19.8 per cent forecast.
“It also implies a deposit to asset ratio of 79.2 per cent in full 2014 estimate versus  81.5 per cent previously.

“On a positive note, we see the potential for an immediate utilisation of the added capital in lending to the bank’s focus sectors and segments. We estimate an full year 2014 estimate loan to deposit ratio of 58.5 per cent  for Diamond, below our coverage average of 60.3 per cent.
“The potential EPS dilution may therefore be reversed in the short term by greater earnings,” they said.
The bank intended to raise $750 million. It first raised $250 million and another $250 million through Eurobond recently. The concluding part of the fund raising exercise is the right issue Daimond Bank had said it was  targeting a CAR of over 20 per cent of assets after the capital injection, from around 17 per cent presently.
Assessing the successful $200 million Eurobond, the Group Managing Director/Chief Executive Officer of Diamond Bank, Mr. Alex Otti, had expressed delight over the level of subscription the Eurobond received.
“The successful issuance of the Eurobonds is yet another milestone in the growth trajectory of the bank. Three years ago, we embarked on the task of transforming Diamond Bank into a leading player in the Nigeria banking industry and having moved four positions from the 11th largest bank in terms of total assets to sixth, we are quite convinced that we are on the right path,” Otti had  said.