KCB puts off Sh10bn rights issue indefinitely

KCB Group has postponed its Sh10 billion rights issue indefinitely as its net profit increased 13.6 per cent to Sh10.5 billion in the half year ended June.

The lender listed on the Nairobi Securities Exchange-listed said it has suspended the cash call, opting for debt financing and internally generated cash to boost its capital ratios.

“The capital raising is rescheduled,” KCB’s chief executive Joshua Oigara said without indicating when the rights issue plan may be revisited.

“We have strong cash flow and there is interest from international financiers willing to lend us up to $200 million (Sh20 billion).”

Announcement of the rights issue, besides the general bear run at the Nairobi bourse, has been linked to the decline in the bank’s share price from Sh40 to the current level of Sh31.5, representing a Sh26 billion drop in market value.

If the rights issue had progressed as planned, it would have caused a small dilution to investors who fail to pump in their share of new capital into the bank.

LESS ATTRACTIVE

The price decline has in turn made the rights issue less attractive since offering a discount price to incentivise shareholders’ participation would have potentially set a price below the bank’s current net asset value per share of Sh29.6.

Mr Oigara said the move to pay part of its dividends for the year ended December through issuance of shares had also saved the bank Sh1.5 billion, further boosting cash to beef up the capital levels.

The lender’s total capital to total risk weighted assets, which had stayed above the regulatory minimum by the thinnest margin, improved to 17.7 per cent as of June compared to 16.5 per cent the year before against the floor of 14.5 per cent.

KCB said it is likely to close the debt deal, of an undisclosed amount, by September.

The loan is expected to mature in seven years, with development finance institutions among those interested in providing the debt to KCB.

The move to suspend the rights issue means the bank will continue to retain a large part of its earnings to boost its capital, with the dividend payout for the year ended December standing at 31 per cent of the total Sh19.6 billion net profit.

Mr Oigara said the bank expects build on the performance in the first half to close the year with strong earnings. Profit growth in the half year was largely driven by increased lending and restrained costs.

The bank’s loan book increased 8.3 per cent to Sh347.3 billion, helping interest income to rise 22.3 per cent to Sh31.6 billion.

Operating expenses increased 1.8 per cent to Sh17.8 billion. Loan loss provision dropped by Sh522.1 million to Sh2 billion, helping to hold down overall expenses even as other items like staff costs went up.