Dfcu to raise Shs200bn in rights issue

Dfcu Limited, the holding company of dfcu Bank, announced Monday that it expects to raise Shs200 billion by selling new shares in a rights issue to settle a shareholder loan.

The company issued 263,157,895 new stock at Shs760 per new share on the Uganda Securities Exchange in Kampala. The deal offers existing shareholders 0.53 new shares for every one share held by close of business on 24 August 2017.

Dfcu’s stock price closed at Shs758 on the Uganda Securities Exchange on Monday, down 0.13% from the day’s opening.

Arise B.V., an investment company based in Cape Town, lent dfcu $50 million – about Shs180bn – to help the bank meet short-term capitalisation needs after it took over Crane Bank in January. The loan was announced in February.

Arise’s loan was used to finance the Shs176bn in additional share capital that dfcu Limited invested in dfcu Bank to ensure that it complied with capital adequacy requirements after its acquisition of Crane Bank.

Arise later took a 55% stake in dfcu Limited, becoming its largest shareholder, after the two previous largest shareholders transferred their shares to the investment company. Rabo Development B.V, and Norfinance AS (Norfund) who each had a 27.54% stake in dfcu Limited, started Arise B.V. last year to control their sub-Saharan Africa banking assets.

Dfcu will consider the rights offer successful if a minimum of 70% of the new stock is taken up and fully paid for, according to the offering memorandum. The offer will close on 25 September 2017.

The new shares have equal rights with existing shares, including the right to receive dividends. Each new share will be entitled to one vote at shareholder meetings and all new shares will be listed at the Uganda Securities Exchange, the offering memorandum said.

Dfcu investors who do not exercise the rights to buy the new shares face the risk of dilution – the reduction in their ownership percentage and earnings per share. The dilution impact could be as much as 35% of the existing shareholders’ ownership, dfcu said in its investor presentation.

If Arise B.V. also exercises its rights, a portion of its loan equivalent to Arise’s holding in dfcu Limited will be converted into equity.

And it most surely will. In February, Deepak Malik, the fund company’s chief executive and a dfcu director, told Bloomberg that dfcu may finalise a rights issue in about six months, and Arise would take a stake – converting their loan into equity.

Related: Dfcu gets profit boost from Crane Bank acquisition