NCB Financial stock slides on APO

NCB Financial shares slid 2.5 per cent, or more than the overall market, on its first day of trading since the large conglomerate unveiled plans to raise about $20 billion, based on prevailing market prices, through an offer of new shares.

On Tuesday, the stock dipped from $70 to $68.22 with a decent volume of over 279,000 units. The 2.5 per cent decline was larger than the 0.17 per cent dip in the JSE Main Market.

Generally, additional public offerings of shares, or APOs, often result in a dilution of ownership by existing shareholders, who generally end up with a smaller stake as new investors come onboard, a factor which might have affected trading in the stock on Tuesday.

The pending NCB Financial share offer would add 300 million new shares, or 12 per cent more, to the mix of the existing 2.466 billion shares already listed on the market.

It will serve to buttress the banking conglomerate’s capital base, which now stands at $236.7 billion, or $184 billion once adjusted for non-controlling interests, to around $257 billion with a successful offer. That would result in reducing the group’s net debt leverage, currently at around 246 per cent of capital. Net debt includes all liabilities minus cash and near cash holdings.

The APO could cool that ratio back towards 226 per cent, which might not seen significant, but restores NCB Financial’s leverage to December 2021 levels.

The group’s debt, excluding customer deposits, now stands at $583 billion, up from some $388 billion in December 2019.

Amid the pandemic, NCB Financial Group last paid a dividend in early 2021, but its chairman, Michael Lee-Chin, wants the banking conglomerate to start making distributions again.

A stronger capital base would help to serve that goal.

The company needs regulatory approval for the APO transaction, as well as shareholder approval. A meeting will be convened later and a date announced for the vote, the company said.

The decision to do an APO was made at a meeting of NCB Financial’s board of directors on September 8.

The group’s profit has fluctuated since the onset of the pandemic, but climbed to $27 billion for FY2022, which was close to the $30 billion earned in 2019. However, the banking group has been experiencing a number of fair value write-downs, which negatively affected its assets and capital.

The pandemic triggered a series of debt raises by the group and this APO would represent its first equity raise.

steven.jackson@gleanerjm.com