Co-op IPO subscription hits 81 p.c.

Co-operative Bank of Kenya has netted Sh5.4 billion in its Initial Public Offering, missing its target by Sh1.3 billion.

Data obtained by the Sunday Nation shows that the offering that closed two weeks ago, registered an 81 per cent subscription after Friday’s tally of returns made by independent buyers – brokers and selling agents.

During the IPO’s closure last week, the bank announced that subscription had reached Sh4.7 billion, 70 per cent of the Sh6.7 billion the bank sought from the share sale.

This is the first time, since 2005, that an IPO has recorded and undersubscription due to the effects of a recession arising from the collapse of the world financial markets.

Though the amount sought by the bank has not been attained, the management and its transaction advisors Dyer & Blair Investment Bank have termed its conclusion a success, considering the prevailing financial market and subdued investor confidence at the stock market.

Depressed market

“In regard to the additional capital, the board of directors, fully appreciating the prevailing depressed market conditions and the primary objective of listing the bank’s shares at the stock exchange, had set a minimum success rate of 30 per cent,” said Coop Bank managing director, Gideon Muriuki.

The new shares come into the market with fears that existing shares may swamp the market, but the bank’s management has sought to allay such fears.

According to the bank’s information memorandum, few shares will be available in the market upon listing with the holding limited company for the country’s cooperatives – with 62 per cent of the bank’s shares – having been locked in for five years.

Staff members took up an allocation of 4 per cent of the shares on offer and are locked in for two years.

The bank has a strong niche in the cooperative movement segment, which is estimated to hold 7 million bankable individuals with the shares purchased in the IPO qualifying for the divided at the close of the year 2008.

Bank’s loans

According to the second quarter financial results, Coop Bank’s non-performing loans are also noted to have reduced from Sh19 billion in June 2007 to Sh8.8 billion in June 2008.

Research indicates that the banking sector is expected to sustain the strong performance throughout 2008 on the back of high capitalisation levels, stable macroeconomic environment, expanding local and regional business opportunities and a robust monetary policy stance.

“The entry of new banks and expansion into the rural areas is expected to heighten competition in the sector.

Growth trajectory

“The previous growth trajectory is therefore expected to continue,” said CfC Financial Services Limited in its Coop Bank IPO research before it closed.

Central Bank of Kenya, the banking sector regulator, oversees 43 commercial banks, which include two full fledged Islamic banks.

Most banks have lately opened (or re-opened) branches in rural areas, an indication of downstream movement by the institutions whose total branch network increased to 740, up 44.5 per cent from 512 in 2003.

Coupled with the launch of new products by the sector, this development is expected to deepen accessibility of financial services by the population.