HF Group cut its fundraising target by Sh1.19 billion in its rights issue filed on Wednesday after changing the number of shares on offer to avoid breaching rules on pricing of new shares.

The company had initially planned to sell up to 1.499 billion shares at Sh4 each; This would mean an increase of Sh5.99 billion assuming full subscription.

HF on Wednesday revised the number of shares available for sale to 1.19 billion, meaning it now aims to raise a maximum of Sh4.79 billion in new cash.

It will now issue 299.9 million bonus shares, one for every four paid shares. This will increase the effective price paid for 1.19 billion shares to Sh5 each, matching the par value of the company as determined at its inception.

Pricing the rights issue at Sh4 per share – were it not for the new maneuver of bonus shares – would have violated the legal requirement prohibiting the sale of new shares at a price below par value.

The bonus shares will be paid for by leveraging the company’s share premium, which reflects the impact of previous share sales above par value, which is Sh4.3 billion as of December 2023.

“Section 356 of the Companies Act states that shares cannot be allotted at a discount (i.e. below par value)… The shortfall will be paid through the group’s share premium account,” HF said in a further fact sheet.

“Practically, this means that for every 5 shares a shareholder applies for and pays for at the offer price, 5 shares will be allocated at par value. These shares will be allocated and accounted as follows: a) 4 shares, fully paid by the shareholder, and b) 1 share will be accounted as a bonus share paid through the share premium account.”

HF priced the cash purchase at Sh4 to more closely track the price at which the stock was traded on the Nairobi Securities Exchange (NSE). Selling the shares at Sh5 would have made the offer less attractive as it would have constituted a significant premium to the market price.

The stock has mostly traded below Sh4.5 since the beginning of the year. Investors who wish to reject a cash call can sell their rights to the offered shares, often at a price well below the price at which the common shares are trading.

The funds raised will be used to increase the company’s capital base as it continues to grow.

“HF Group is raising capital as part of its strategy to increase HFC’s investment in expanding business segments, bolster its capital base and ensure it has adequate capital,” HF said.

“The capital injection will also allow HF Group to continue implementing its growth strategy through investments in growing business segments and strengthening its digital offering.”