Are the money men trying to make a killing out of National Bank?
What you need to know:
- During the last AGM on May 30, ordinary shareholders resolved to float a rights issue to raise Sh13 billion. They decided the proceeds of the rights issue would be used to pay off the government’s preference shares, thus eroding the muscle of government in the bank.
- In 2009, PriceWaterhouseCoopers, who were retained to advise the government on how to privatise the bank, recommended that the preference shares be converted into ordinary shares on 1:1 basis.
We all hailed the parastatal reform process as one of the most successful achievements of the administration of President Uhuru Kenyatta.
Indeed, the task force came out with very fresh ideas, especially on how to approach the running of commercially-oriented parastatals. We were to create a Governance Investments Corporation to manage all government investments.
Blanket privatisation as prescribed by the Washington Consensus — complete with a whole bureaucracy charged with auctioning government assets, would give way to a new regime where government investments would be managed by the proposed investment corporation.
Government ownership of commercial entities would no longer be regarded as a sin, as the World Bank and the International Monetary Fund had all along taught us. Instead, government-owned enterprises would be run commercially.
When you look at some recent developments, you get the impression that decisions are being rushed to make it happen even before the GIC is established.
I make this statement especially with regard to the proposal to restructure the balance sheet of the state-owned National Bank of Kenya. Why are we in a hurry to dilute the government’s economic power in the bank before the GIC kicks in?
The taxpayer pumped billions of shillings into the bank’s revival. Indeed, nearly all Finance ministers who have served in recent times left office without injecting public resources into this bank.
It is estimated that more than Sh20 billion has been pumped into this bank. And this is before you calculate what the public has spent in terms of regulatory forbearance by the Central Bank of Kenya.
The late Reuben Marambii, the longest-serving CEO of the bank, even as he served, was an employee of the Central Bank of Kenya.
The upshot of all this is that the bank has a very complex shareholding structure. Because the loans extended by the government did not qualify as core capital, it remained under-capitalised and insolvent.
Consequently a decision was made in 2003 to convert all government loans and a fraction of deposits by the National Social Security Fund into preference shares.
ABROGATE SHAREHOLDER RIGHTS
Today, the shareholding structure is as follows: the government holds 79 per cent in preference shares while the NSSF holds 21 per cent. In the ordinary shares class, the NSSF holds 48 per cent, the public 29 and the government 22.
Two important conditions were inserted. First, holders of preference shares would not have powers to vote at the Annual General Meeting of the company. Secondly, the preference shares, while earning interest for the government, are not redeemable.
During the last AGM on May 30, ordinary shareholders resolved to float a rights issue to raise Sh13 billion. They decided the proceeds of the rights issue would be used to pay off the government’s preference shares, thus eroding the muscle of government in the bank.
That resolution left experts in company law and contemporary corporate governance scratching their heads asking: Is it fair for one class of shareholders to abrogate the rights of another class of shareholders?
It was therefore, not surprising that when the resolutions for easing out preference shareholders from the bank’s register was presented to the Capital Markets Authority for approval, the CEO, Mr Paul Muthaura, insisted he needed to look afresh at the loan-conversion agreements that created the preference shares in the first place.
I now gather that a small clique from the Treasury, the National Bank and NSSF, ostensibly meeting as representatives of preference shareholders, have struck an arrangement where the government would be eased out through the redemption of the preference shares under terms they have themselves decided.
First, the government will be paid Sh5.6 billion for the 900 million preference shares it holds. Then it will use the same money to take up its rights in its capacity as an ordinary shareholder.
Today, the National Bank of Kenya is very profitable. In 2009, PriceWaterhouseCoopers, who were retained to advise the government on how to privatise the bank, recommended that the preference shares be converted into ordinary shares on 1:1 basis.
I think the decision and terms under which the government is to stay in the company or get out should be postponed until the GIC is in place.
