Business Daily (Nairobi)
Geoffrey Irungu
29 June 2008
The Co-operative Bank has doubled the amount of money it plans to raise from an initial public offering later this year.
Sources close to the bank said it will now be asking for Sh10 billion from investors up from an initial plan to raise Sh5 billion from the IPO.
The decision to increase the size of the IPO is said to have been informed by the overwhelming response to the just concluded Safaricom IPO that raised more than Sh190 billion against a target of Sh50 billion.
Expansion plans
Bank shareholders gave their approval to the IPO at an annual general meeting held on Friday.
The bank says it will use money raised from the shares sale to finance the diversification of its product offerings and expand its branch network.
Expansion of the branch network is expected to enable Co-op Bank take advantage of the limited penetration of banking products in the country.
This year alone the bank has opened branches in Naivasha town, Moi Avenue and Wakulima Market in Nairobi.
More than 20 outlets are set to be opened by the end of the year in Ukunda, Mtwapa, Eastleigh, Ongata Rongai, Upper Hill, Kayole, Zimmerman, Kitui, Busia, Siaya, Voi, Malindi, Nanyuki, Isiolo, Nkubu, Siakago and Westlands in Nairobi.
Enhance competitiveness
"The Sh10 billion capital injection from the IPO should enhance our competitiveness following our impressive performance that delivered Sh805 million in profit before tax for the first quarter of the year," said CEO Gideon Muriuki.
Co-op Bank, one of the top 10 banks by assets and deposits, is betting big with the IPO at a time when there is intense activity in the market.
One of its main rivals, KCB, is currently raising money through a five billion shillings rights issue while Housing Finance is looking for Sh2.3 billion in a similar issue.
Profitability of Co-op Bank has been improving in the last six years hitting Sh2.32 billion mark in 2007, an 85 per cent rise from Sh1.26 billion realised in 2006.
Capital Market Authority rules require that an institution must have made a profit in at least three of the last five years to qualify for listing at the Nairobi Stock Exchange.
Coop Bank may, however, have to split the shares it sold in a private placement in 2000 and 2001 at a price of Sh100 to navigate the turbulent water of share pricing during IPOs as well as offer investors a discount.
Primary market
Recent IPOs, including KenGen, sold shares in the primary market at a discount of 20 per cent or Sh11.90 while Safaricom was sold at 14.7 per cent discount or five shillings a share.
"They will have to split the share to enable the existing shareholders realise their value," Job Kihumba of Standard Investment Bank said.
Such a split could be beneficial to the existing shareholders if there is a rise in price after the flotation.
This is not to mention that the existing shareholders have been having it good given that they received a dividend of five shillings a share from the 2006 results and are now set to receive eight shillings a share from the improved financial outcome of 2007.
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