How Femi Otedola’s Decision To Sell Geregu Stake Cost Shareholders N60.50 billion

Shareholders of Geregu Power, the company owned by Femi Otedola, will have little or nothing to celebrate this Christmas season, having lost most of the returns on their investment within two weeks.

On October 5, Geregu was listed on the Nigerian stock exchange at a share price of N100, but demands from capital market investors pushed the stock value to N110 per share at the end of trading activities on the same day.

Since the company was listed, the share had risen by N30.2kobo from N100 per share to N130.20kobo as of December 1, 2022, increasing shareholders’ investment by 30.2 per cent within two months.

However, the majority of that gain has been lost, thanks to an announcement by Geregu, informing shareholders that the company will be selling a portion of the firm to the Fund for Export Development in Africa (FEDA).

The announcement was made on Friday, December 2, 2022. Although the volume of shares Femi Otedola is willing to sell was not made public, it was enough to scare the capital market away from Geregu’s share.

While the negotiation with the Fund for Export Development in Africa, an impact development arm of Africa Export and Import Bank (Afreximbank), has not moved to the advanced stage, shareholders are already feeling the impact of the deal – and it’s negative.

Since the announcement on December 2, Geregu shares have been on a downward path, causing shareholders to lose -18.58 per cent of their investment within two weeks.

According to Prime Business Africa’s analysis of Geregu’s stock performance, this translates to N60.50 billion loss on shareholders’ investment, as low demand reduces the value of Geregu’s share and market valuation.

As of December 19, 2022, the share is trading in the stock market at N106 per share, which means investors are not willing to buy Geregu stock for N130.20kobo it cost a day before the announcement of the yet-to-be-concluded deal.

This has also affected the market valuation of Geregu, as the company is now worth N265 billion, significantly below the N325.5 billion Otedola’s firm was valued on December 1.

Note that Geregu selling part of its stake to Afreximbank subsidiary means Otedola is reducing his investment in the power plant firm, and this often send negative signals to shareholders.

When a substantial shareholder plans to sell stake, it affects the confidence of minority shareholders of the firm and investors in the capital market to hold the company’s share.

Once investors’ confidence drop, it leads to sell off among shareholders and triggers profit-taking among some stakeholders, resulting into loss for shareholders who fail to exit on time or held on to the firm’s share.