29 December 2011

Kenya: Consolidated Bank Eyes Sh4 Billion Bond After IPO Delay

Consolidated Bank said Wednesday it has received approval from the regulator to float a Sh4 billion corporate bond to fund its expansion plan dashing hopes of bank listing at the Nairobi Securities Exchange in the short-term.

The bank said it will issue the bond in tranches with the first lot being used to open new branches, upgrade its information technology network and deepen its agency banking arm to boost marketshare and profitability.

The fund raising will also help to boost its capital levels, which is currently 1.5 per cent shy of the legal limit, and Central Bank of Kenya restricts banks whose core capital ratio is below eight per cent from collecting additional deposits from the public.

Consolidated Bank did not give a date when it will raise the funds, adding that the timing would be guided by the moment interest rates on bonds will become affordable.

The average rates on the 10-year bond has risen to about 15 per cent from 8.5 per cent last year--a move that has discouraged corporate Kenya from raising capital from fixed income market despite forming a bee line last year. "The CMA (Capital Markets Authority) has approved the application and is awaiting communication from us on the dates when we intend to go to the market," said Japheth Kisilu, a general manager at the bank in an e-mail to the Business Daily.

The bank had applied to the CMA to raise the first tranche of the bond in the quarter ending this December, but the volatile interest rate regime forced it to put the plan on ice.

"Indeed the reason that the bank put a hold on the intended bond issue was because the market was not attractive during Q4 of 2011," added Mr Kisilu.

Consolidated Bank was targeting to raise Sh2 billion through an initial public offering at the Nairobi Securities Exchange, but the plan was delayed by lack of government approvals.

The bank is wholly owned by the government. The Privatisation Commission, which is in charge of disposing government assets, could not approve the offer since it lacked directors to approve the decision.

Its listing at the Nairobi bourse was also going to be hurt by the bearish run at the NSE.

Share price erosion at NSE has seen investors lose more than Sh300 billion since the beginning of the year and the market index shed nearly 30 per cent of its value to stand at 3,163 points in the period. The bank says the listing plan is now dependent on the government.

"The bond does not affect the privatisation -plans for the bank's privatisation is independent, and are carried out by the shareholder, which is the government," said Mr Kisilu.

The planned disposal of the bank to the public has been in the offing since 2007, alongside several other enterprises that the state has part or full control in such as the New KCC, InterContinental and Hilton Hotels.

Since its incorporation in 1989 by way of merging nine insolvent banks, Consolidated Bank has not had external capital injection.It has relied on retained earnings to finance expansion.

Consolidated Bank's total deposits at the end of June stood at Sh10 billion, while its core capital base of Sh956 million put its deposits to capital ratio at 9.5 per cent -- against the statutory minimum of eight per cent.

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