Haphazard HNB!

Exposing itself to the danger of being the laughing stock in the market as well as the industry HNB Board yesterday opted to revise its previous plans on Rights Issue with the fresh thinking including a debenture issue.

Adding fuel to growing speculation that there was growing differences of opinion within the board as well as some of the major shareholders over the issue of how much to raise and which way, the change of stance is the third time in less than a month.

However the HNB Board in announcing the latest revision officially took cover saying “taking into consideration the recent developments in equities and debt market” it decided to revise the structure of the capital augmentation plan.

At its meeting yesterday, HNB Board of Directors decided to recommend to shareholders the issue of 35,753,936 new ordinary shares comprising 28.74 million of voting shares and 7.013 million in non-voting by way of a one for 10 Rights Issue.  There is no change in the pricing, with voting to be issued at Rs. 219.50 per share and non-voting at Rs. 119.50 per share.

The new basis means HNB is only raising Rs. 7.14 billion via Rights, down from Rs. 14.3 billion previously under the second revision (rights only) and Rs. 15.07 billion in the original announcement involving a combination of Rights and Private Placement with foreign investors.

The HNB Board also decided yesterday that Rs. 7 billion will be raised by way of long term debt instruments as a move to raise Tier II capital.

As the previous proposal stands withdrawn, new dates will be decided for the EGM to get shareholder approval for the fresh move.

The latest twist in HNB Board’s stance was announced after the market closed yesterday. It would be interesting to see how the market and investors react today on the new move. HNB voting share yesterday closed down Rs. 3.40 to Rs. 220.70 and the new Voting Rights price may look a non-starter as the discount to the market is almost razor thin with a difference of Rs. 1.20. Lack of quantities may still make HNB Rights attractive but analysts expect the haphazard decisions at the Board level to be a blow to investor confidence. HNB non-voting closed down by 40 cents to Rs. 129.90.

Ever since the first announcement of Rs. 15 billion mega capital raising move market has been questioning why such a massive amount as well as why place a part with foreign investors. After some reservations, the Board abandoned the foreign placement which saw some of those lined up collecting quantities in the market. Yesterday’s revision further confirms there are still differences of opinion on the quantum as well as modus of raising. Soon after the first and second announcements some analysts said that certain shareholders weren’t willing to subscribe to the Rights.

HNB officials have been maintaining that the planned amount of new capital was necessary to strengthen the capital base and balance sheet as well as finance a strong pipeline of credit demand.