Transcorp Hotels Plc (TRANSCOHOT), in a press release on Tuesday 30 June 2020, announced that its shareholders have unanimously authorized the Board of Directors to raise N10 billion in a proposed rights issue.
The approval given at the Extraordinary General Meeting of the Company, which took place on Monday, 29th June 2020, in Lagos was to issue 2,659,574,468 Ordinary Shares of 50 kobo each by way of a Rights Issue to the Shareholders based on 7 new Ordinary Shares for every 20 Ordinary Shares of 50 kobo each held at a price of N3.76 per share.
The proceeds will be used to fortify the balance sheet of the company. A review of the company’s balance sheet over the past 5 years (2015 – 2019) shows a faster rate of growth of total liabilities compared to total equity.
As can be seen from the graph, the equity multiplier which measures the portion of a company’s assets that are financed by shareholder’s equity, has been increasing. A higher equity multiplier number indicates that the debt portion of total assets is increasing which translates to more financial leverage for the company.
Consequently, TRANSCOHOT debt ratio, which measures the extent of a company’s leverage, has also been increasing. The debt ratio can be interpreted as the proportion of a company’s assets that are financed by debt.
A debt ratio greater than 1 shows that a considerable portion of debt is funded by assets, while a ratio below 1 translates to the fact that a greater portion of a company’s assets is funded by equity.
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For the rights issue, the shares will be issued from the authorised share capital of the Company which is currently at N7,500,000,000 comprising of 15,000,000,000 Ordinary Shares of N0.50 each, and the resultant issued and fully paid-up share capital will be N5,129.989.184 consisting of 10,259,978,368 Ordinary Shares of N0.50 each.
In responding to the unanimous approval, the Chairman of Transcorp Hotels Plc Emmanuel Nnorom noted that “this approval and endorsement of shareholders empowers the Board and management to look to the future with confidence despite the current harsh operating environment.”
The Managing Director/CEO of Transcorp Hotels Plc while welcoming the approval, added that “the world has been greatly impacted by the COVID-19 pandemic, with the hospitality industry being one of the hardest hit.
“However, we are optimistic about a great recovery for the sector and your approval today shows that you also share in this mindset. We will continue to play our part in ensuring a significant recovery to the Nigerian hospitality industry.”
Representing the Ministry of Finance Incorporated on the Board, Mr. Alexander M. A, a Non-Executive Director of the Company, said “given the challenging times the hospitality industry faces, it has become critical to inject funding into the business for a stronger balance sheet.
“Transcorp Hotels has maintained a history of excellent performance in the hospitality industry, and this is a bold step towards the achievement of its long-term goals.”
Transcorp Hotels Plc (“Company”) is the hospitality subsidiary of Transnational Corporation of Nigeria Plc. The Company owns and operates Transcorp Hilton Abuja, which provides luxury accommodation, excellent cuisine, conferencing and leisure facilities to business travelers and tourists from all over the world.
The Company also holds 100 percent interest in Transcorp Hotels Calabar Limited, which owns and operates the Transcorp Hotels in Calabar.
TRANSCOHOT was incorporated under the Companies and Allied Matters Act on 12 July 1994 as a private limited liability company and is domiciled in Nigeria. The registered office is located at 1 Aguiyi Ironsi Street, Federal Capital Territory, Abuja, Nigeria.
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An Initial Public Offering (IPO) by TRANSCOHOT to raise about N8 billion from the investing public opened on Wednesday, September 24, 2014. The proceeds of the offer was to be used to part-finance its expansion projects specifically the construction of two new flagship hotels in Ikoyi Lagos and Port Harcourt as part of its broader expansion plans.
The company issued 800 million shares of 50 kobo each at N10 per share via the IPO and the listing of the shares of the company on the Nigerian Stock Exchange (NSE) was done after the IPO. However, information on the company’s website show that the company has only two hotels under management; Transcorp Hilton Abuja and Transcorp Hotels Calabar.
TRANSCOHOT currently have a total outstanding shares of 7,600,403,900. Transnational Corporation of Nigeria Plc (TRANSCORP) holds 83.47% of the shares, while the Ministry of Finance Incorporated owns 11.02%.
A review of the company’s 2019 full year financial statement for the period ended 31st December 2019, showed 84% drop in Profit for the year to N633.68 million from N3.87 billion reported in 2018. This massive drop was as a result of a N4.30 billion finance cost booked in the 2019 financial year.
The share price of TRANSCOHOT at the end of trading today is N4.00, although only 10,000 units of the stock was traded. The price has been flat for the past 1 month. The N4.00 is the 52 week low price for the stock, the 52 week high is N5.40.
A rights issue is a group of rights offered to existing shareholders to purchase additional shares in proportion to their existing holdings. These are considered to be a type of option since it gives a company’s stockholders the right, but not the obligation, to purchase additional shares in the company.
With TRANSCOHOT recording a loss of N686.53 million for the period ended 31 March 2020, we expect the next financial report (First half for the period ended 30 June 2020) to be amongst the worst in the company’s history given the restrictions and disruptions caused by the Covid-19 pandemic.
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