17 May 2017

Kenya: Insurer Liberty's Sh250m Tied Up in Shelved Chase Bank Bond

Insurance group Liberty Holdings has revealed it has Sh250 million locked in the suspended Chase Bank corporate bond, joining a list of high profile firms counting losses from last year's collapse of the lender.

Chase Bank's fall in April 2016 -- it has since reopened under a receiver manager--resulted in the Sh4.8 billion bond being suspended from trading at the Nairobi Securities Exchange, effectively denying investors such as Liberty a chance to either cash out or earn any interest from it.

The insurer has as a result ceded Sh28 million so far in interest from the bond (after tax), which was listed on the NSE in June 2015 with a coupon rate of 13.25 per cent.

"The group has a total of Sh250 million invested in the Chase Bank corporate bond. In view of the bank's receivership status, management has made an assessment of its recoverability in light of a guidance note issued by the CMA and various communication from the Kenya Deposit Insurance Corporation (KDIC) and CBK," says Liberty in its 2016 financial year report.

"On the aforementioned basis, management elected not to accrue any income over the receivership period. Further, the carrying amount has been set at par (Sh250 million)."

Accrued earnings

The lack of accrued interest earnings from the Chase bond contributed to a fall of Sh71.2 million to Sh252.4 million in Liberty's investment income from corporate bonds and commercial paper in 2016.

Insurers holding the non-performing bond will have to set aside higher capital as provision once they migrate to risk based capital model.

"The longer it stretches out the likelier we will see audit queries come in forcing holders to take action and impair or provision for this bond," said Standard Investment Bank head of research Francis Mwangi.

The suspension of the bond from trading means that investors have missed out twice on interest payments -- in June and December 2016 -- bringing the total interest accrued on the bond to Sh639 million.

CBK has however recently announced that it has shortlisted a number of suitors out of the 12 that expressed interest in buying Chase Bank, meaning a resolution on the bond impasse could be in sight.

The sale is set to be concluded by the end of September.

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