CalBank launches GHC 600 million rights issue

Indigenous financial services provider, CalBank is aiming to raise GHC 600 million in fresh capital through a renounceable rights issue.

This capital injection will aid the lender’s recovery from the effects of the Domestic Debt Exchange Programme (DDEP) and fuel its future growth plans.

The move will offer existing shareholders the preferential right to purchase new ordinary and preference shares at a discounted price of GHC 0.29 per share. It represents a favourable opportunity for shareholders to increase their stake in the Ghana Stock Exchange (GSE) listed bank at a cost lower than the current market price of GHC 0.40 per share.

The proceeds from the rights issue will be directed primarily towards restoring the bank’s capital buffers to pre-DDEP levels, bolstering its capital adequacy ratio in the process, Board Chair, Joe Rexford Mensah said at the launch on Friday, 5 April , 2024.

The issue comes after the bank’s shareholders authorised its directors to raise up to GHC 600 million in additional capital during its Annual General Meeting (AGM) held in June 2023. The board determined a rights issue to be the most suitable method for securing the required funds.

“As a result of the Domestic Debt Exchange Programme in 2022 and some additional impairments authorised by the Board out of an abundance of caution, our financial performance over the last two years was challenged. This resulted in the bank taking significant impairment charges on our financial assets for the 2022 and 2023 financial years.

This necessitated that CalBank improve upon its regulatory capital position to continue the effective execution of its growth strategy. The injection of GH¢600 million in new capital will restore CalBank’s historically robust growth trajectory and enable it to continue to deliver long-term value to its shareholders,” the board chair elaborated.

A perusal of the bank’s financials shows that net impairment loss on financial instruments skyrocketed by 1,650.24 percent from GHC 82.4 million in 2021 to GHC1.44 billion in 2022.

The metric was marginally lower in 2023 at GHC1.23 billion. Consequently, it recorded post-tax losses of GHC 815.2 million and GHC 681 million in 2022 and 20203 respectively, from a profit of GHC 215.2 million in 2021.

In addition to the previously mentioned goals, the chairman outlined several strategic uses for the funds. These include increasing the single obligor limit, allowing the bank to facilitate larger transactions, supporting targeted transactions in important economic sectors, and strategically expanding the bank’s branch network across the country, as well as enhancing CalBank’s technology platforms.

If the rights issue falls short of the target, CalBank intends to bridge the gap through a private placement of new shares to new investors.

However, Mensah was confident of the success of the issue, citing the bank’s track record on the capital market, including the over-subscription of its Initial Public Offer (IPO) in 2004 and a similar rights issue in 2009 to meet the regulatory capital requirement of GHC 25 million at the time.

On his part, the deputy managing director of the Ghana Stock Exchange (GSE), Frank Berle expressed excitement at the development, noting that the rights issue will deepen the market and stimulate activity.

“The GSE’s relationship with CalBank goes way back to 20 years ago and it has been fruitful all the way. We believe this new phase will not only bring about new securities but even new investors unto the market,” he said.

CalBank, like other financial stocks, have endured a tough 20-plus months, owing largely to the DDEP. The stock has shaved off 16.7 percent of its value since the beginning of the year, falling from GHC 0.48 to GHC 0.4 as at the close of the final trading day of the first week of April 2024.

Nevertheless, analysts are convinced that the tide will turn shortly. Already, the GSE’s Financial Stock Index has made a year-to-date gain of 5.96 percent, with the broader market gaining 10.67 percent.

CalBank has an earnings per share of 0.3778 and a price to earning ratio of 1.06 on its current 627 million outstanding shares.

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