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What we know about LASACO shares reconstruction exercise and why it matters

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Lasaco Assurance Plc is undergoing share reconstruction, and the process has taken longer than planned for. The delay in completing the share reconstruction and the exercise itself will have a short-term and longterm impact on existing and prospective investors.

On January 28, 2021, Lasaco Assurance revealed in a stock market filing that it received regulatory approvals to reconstruct its issued and fully paid-up Share Capital of 7 ,334,343,421 Ordinary shares of 50kobo each in the ratio of One (1) new Ordinary share for every Four (4) Ordinary shares previously held by the shareholders of Lasaco Assurance.

The share reconstruction was meant to last for two weeks (February 1 to February 12), but the company has extended the timeframe. According to a statement issued to the Nigerian Stock Exchange (NSE) on Tuesday, and obtained by Ripples Nigeria, Lasaco Assurance extended the share reconstruction exercise by one week, with the deadline now set for February 19.

How delay affects investors

The extension will prevent prospective investors from investing or purchasing Lasaco shares. This means for the last two weeks, investors have been unable to access Lasaco shares due to the share reconstruction exercise, and the investing public will have to wait one more week.

Trading on Lasaco stocks had been suspended since it began to reconstruct it shares, with the share price plunging to N0.42kobo same day it announced the company’s readiness to begin share reconstruction.

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Some existing investors protected their loss by selling off their shares, dragging the share price down to N0.45kobo per share, prior to the exercise. And other existing investors with no long standing will be unable to sell until next week.

How share reconstruction affects investors

Share reconstruction is known as reverse stock split, which listed companies do to mop up their outstanding shares by reducing the volume. Companies that engage in reverse stock split end up with an increase in their share price, but doesn’t change their market value.

So reconstructing share won’t affect Lasaco’s market capitalisation or value, but it reduces the outstanding shares of Lasaco. The reconstruction of the shares will reduce the number of shares held by existing investors prior to the exercise, and increase the value of their stock after the exercise.

For better understanding, during a one-for-10 reverse stock split, an existing investor with 1000 shares at N1 before the reconstruction will end up with 100 shares worth N10 after the exercise. This means the lower the shares, the higher its worth, but doesn’t change the initial value of the shareholder prior to the exercise.

How Lasaco will be affected

The exercise would prevent Lasaco stock from being delisted by the NSE. Although the company’s share price is down at N0.42kobo, the minimum floor price is N0.20kobo; which means Lasaco is N0.22kobo shy of the drop zone.

NSE delisting Lasaco from the capital market will cost the company high networth individuals and foreign investment. Also, the reverse stock split exercise will also boost its image in the eyes of the investing publics and avoid being seen as a risky investment.

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