[2007-11-20]  Govt Risks Diluting Its Stake in New Vision Rights Issue
NEW Vision's bid to raise money through a rights issue could result in the dilution of the current shares for shareholders who fail to buy, according to a Uganda Stock Exchange, USE, official.

The company announced last week that it will offer 25 new million shares for sale to raise money to fund its expansionist programme, notably the setting up of a broadcasting division.


Mr Simon Rutega, the chief executive officer of Uganda Securities Exchange in an interview last week, said the new shares would be offered to the existing shareholders for purchase at a discount.

However, if the existing shareholders fail or are not interested then they would have to "suffer a value dilution of their equity."

"It will be to up them, the company gives them a priority, it's up to them to increase their equity at a certain price but if they can't afford then the public will have to be brought in. But then the existing shareholders will equity diluted," he said.

Currently the New Vision Printing and Publishing Corporation has only 20 per cent listed on USE while the rest is still owned by the government.

Mr Robert Kabushenga, the company's CEO said the government like any other shareholder will be given priority to buy the extra shares at a discounted rate but that the decision on whether to take them is up to it.

By implication if the government fails to buy the shares, it will find its shareholding reduced from the current 80 per cent. Previously the government has had to lose equity in companies because of failure to find the money when a capital call is made. Early this year, the government had its 51 per cent equity in Uganda Telecom cutback when it failed to raise money as part of its shareholder contribution to new investment capital.

New Vision's decision to undertake a rights issue could have stemmed from the sudden leap of its share price on USE, from around Shs400 and doubling in a space of one year to the current Shs890, according to MBEA brokerage. The company's shares surged by a substantial margin in October after it announced a 66 per cent increase in dividend payments from last year's.

If the company's right's issue follows through, it will be following closely on the heels of Uganda Clays which split its shares at the end of last year. After the split, UCL opened at 3,785 from the high of Shs22,000 before the split.

But it has since surged ahead to Shs5000. DFCU has also had its share price rise steeply to the current Shs580 from a low of Shs420 four months ago. Equity analysts are attributing exuberance on USE to an huge inflow of foreign capital, particularly from Kenyan investors who take most of shares here as undervalued.

Source: Copyright © 2007 The Monitor.