Bank of Valletta is currently offering 105,000,000 new ordinary shares at a price of €1.43 per new share by way of a rights issue. This will result in an increase in its capital base by approximately €150,000,000. BOV’s Chief Officer Investment Services, Romeo Cutajar, explained that the main objective of the rights issue is to consolidate the long term financial sustainability of the Bank. Being regarded as a local systemically important institution by the European Central Bank, BOV is required to hold capital buffers which are higher than those which would be required of less significant banks. As a consequence of the rights issue, the Bank will significantly strengthen these regulatory capital buffers, allowing it to exceed such buffers.
The capital increase is also intended to support BOV’s strategic initiatives for the upcoming three years, which will include new business undertakings that will contribute to future earnings growth. In addition, the capital increase will also allow the bank to maintain a prudent dividend pay-out ratio.
Speaking to The Malta Independent on Sunday, Cutajar highlighted how, “BOV is concentrating on expanding income yielding business lines such as asset management, bank assurance and personal lending. Cutajar added that digitalisation is also a priority area for BOV. The thinking behind the digitalisation strategy is to keep up with competitors and to compete with FinTech companies who are competing in niche markets such as the card and payment markets.
“Ultimately we also want to offer a better service to our customers via the digitalisation strategy. In fact, the bank is currently undergoing a transformation to its core banking system. The core banking transformation, which will cost the bank around €44 million, will be accompanied by a bank-wide change programme that will transform business processes with the aim of providing higher quality of service and will also provide a solid foundation for developing the bank’s future strategy to digitalise its services.
Cutajar said that the idea of raising capital was floated more than 15 months ago by BOV’s previous chairman, who indicated that, going forward, the bank would have to strengthen its capital buffers. “This was reiterated by our current chairman, indicating this when he presented the bank’s financial results last year.”
The increase in capital of 105,000,000 shares will result in the issued share capital of the bank increasing from 420,000,000 ordinary shares to 525,000,000 ordinary shares (of a nominal value of €1.00 per share) constituting an increase of 25% in the issued share capital of the bank. The offer period opened on 8 November 2017 and will end on 6 December 2017.
Cutajar quashed the notion that it was the financial crisis that required BOV to raise its share capital. He stressed that while the financial crisis did result in new and much more onerous regulations being imposed on banks, the main reason for the rights issue by BOV was, as already explained, indeed a regulatory one. In fact all banks within the EU, in particular systemically important banks such as BOV, are subjected to such regulations.
How does the rights issue work and who can benefit?
Cutajar then delved into how the rights issue works in practice, who is eligible to participate in the rights issue and how the pricing is worked out.
“BOV’s memorandum and articles stipulates that if there is going to be a rights issue, this must be on a pre-emptive basis, meaning that first preference must be given to the current shareholders.
“The shareholders that were on our register as at 26 October 2017 will be eligible for the rights at a ratio of one right for every four shares held. So, a shareholder who holds 1,000 shares will be allocated 250 rights. Each right entitles the shareholder to one share.
“The 1:4 ratio is derived on the basis of the amount of capital being raised, which in our case is €150,000,000, the average price used to work out the price of the rights issue and the discount applied. It is in fact common practice that when there is a rights issue on offer, it is done so at a discount. We therefore had to determine the discount and this is based on what is termed the theoretical ex rights price.
“The bank ultimately decided to apply a discount of 27.5% on the theoretical ex rights price which is in line with discounts applied by international banks in similar offerings. In applying this discount, the bank wanted to find the right balance between offering an attractive rights price to our current shareholders but also taking into consideration the level of dilution that would affect those shareholders who do not take up their rights.”
He observed that current shareholders have several options: “they can take up all the rights allocated to them up to their proportionate entitlement. They can also accept part of the rights, and either let the other part lapse or assign part or all of their proportionate entitlement to a third party. Shareholders may also apply for lapsed rights not taken up by other shareholders. He further stated that bank employees may also apply for lapsed rights not taken up by shareholders as may the general public, the latter through authorised financial intermediaries. Applications by employees and the general public are subject to a minimum of 1,000 new shares and in multiples of 100 thereafter.”
“Shareholders applying to acquire shares up to their proportionate entitlement, as well as their assignees, are guaranteed to receive all the amount applied for. Shareholders applying for lapsed rights, (if any will be available), may be subject to scaling down of the amount applied for. The same applies to employees and the general public applying for lapsed rights.”Published on The Malta Independent on Sunday 26 November 2017Click here to download this article