I&M Bank activates capitalisation strategy

I&M Bank is seeking to raise Sh10 billion by selling a corporate bond, marking an activation of its capitalisation plan that was a key reason behind the lender’s listing on the Nairobi Securities Exchange (NSE).

The listed bank has got approval from the industry regulator, the Capital Markets Authority (CMA), to raise part of the amount in the first tranche of the offer.

“The authority has also granted I&M Bank approval to issue the first tranche of floating rate notes and the fixed rate rotes amounting to Sh3 billion (with a Green Shoe option of Sh1 billion) as part of the Sh10 billion Medium Term Note programme,” said the CMA in a statement last week.

The bank, which listed on the NSE in June, had earlier said that it would use the bourse to raise additional capital but it did not mention how it intended to do this.

“Provide I&M with a platform to raise additional capital in the future to facilitate the achievement of its long term growth and expansion strategy, and thereby, improve upon its capabilities to successfully manage the growth achieved in the last few years,” said the bank prior to listing. The Sh3 billion medium term note will be sold to investors at Sh100,000 notes.

I&M Bank, similar to Housing Finance, is raising additional funds for expansion through the issue of a bond. Analysts said the choice of debt is driven by desire to raise long term funds. Housing Finance is selling a Sh20 billion bond for construction of houses.

Francis Mwangi, head of research at Standard Investment Bank, said that a challenge for the industry has been a mismatch between deposits and loans. Average deposits tend to be short-term while average loans tend to be long-term which creates a problem for banks.

Partnering or buying

Issuing bonds with long dated bonds has been one remedy for the mismatch.

I&M Bank has met capital requirements as set out by the banking regulator, the Central Bank of Kenya (CBK), which further makes a case for issuing the bond to expand. As at June 2013 I&M’s core capital to total risk-weighted assets stood at 16.51 against the CBK’s 8.51 minimum capital.

The bank’s management has alluded that expansion will be beyond Kenya’s border.

A coverage note on the bank by Sterling Capital says that I&M is planning to expand to greater Sub-Sahara Africa, Uganda and South Sudan either by partnering or buying out other banks.

“We note that the markets I&M intends to penetrate have immense potential and opine that their preferred method of entry will be mergers and acquisition, as alluded to by management,” says the coverage note.