NBM Capital Markets Limited, an investment advisory services firm leading the TNM plc recapitalisation, has assured minority shareholders that the overall benefits of issuance of new shares for cash outweigh any impact of share dilution.
Two weeks ago, TNM plc unveiled plans to raise K30 billion by issuing new shares for cash, targeting three main shareholders, namely Press Corporation plc, Old Mutual Life Assurance Company Limited and Nico Life Insurance Company Limited.
Minority Shareholders of Listed Companies secretary general Frank Harawa earlier said unlike raising funds through rights issue where everyone is eligible to participate, the approach means their shareholding will be diluted and it is difficult for them to stop the process.
But NBM Capital Markets Limited chief executive officer Benson Jere, who is the lead adviser in the transaction, said in an interview on Friday that although the share transaction involves few TNM plc existing shareholders, their capital injection will positively impact all shareholders.
He said: “When a company issues new shares of same classes, shareholders face dilution effects. The share dilution only reduces the percentage ownership of existing shareholders against total issued shares of the company.
“It, however, does not affect the capital or market value of its shareholders. Besides, it reduces the voting rights of other shareholders in an unlikely event such as disputes when the new shares are issued to limited subscribers as is the case here.”
Jere said the overall benefits of the transaction outweigh any impact of dilution, adding that recapitalisation will significantly reduce the debt burden of TNM plc.
He said the successful conclusion of the transaction will improve the financial position and profitability of the company and enhance shareholders’ value and dividend payout.
“Based on empirical evidence, such transactions tend to enhance confidence and reliability of the company among investors, thereby leading to capital appreciation through upswings in the stock price in the short to medium-term,” he said.
MSE chief executive officer (CEO) John Kamanga said in an interview on Friday that using shares for cash ensures that the company accesses the market timely and raises the funds on time.
While acknowledging that other shareholders will see their equity holding diluted, he said the dilution will be minimal because the shares to cash is controlled to a certain ratio.
TNM CEO Michael Herbert said on Friday they look forward to a successful execution of the transaction.
The issue is expected to be discussed and approved at TNM plc extraordinary general meeting to be held on May 2 this year.
In TNM plc, Press Corporation plc holds 43.72 percent stake, Old Mutual Life Assurance Company has 23.57 percent, Nico Life Insurance Company Limited own 8.16 percent while the public has 24.55 percent.
