ABC Bank plans to raise Sh1bn by private bond

African Banking Corporation (ABC) intends to raise Sh1 billion from preferred investors through a bond to support growth in its lending.

Sources said the mid-sized lender will issue a private bond of Sh650 million and take an extra Sh350 million if investor appetite allows.

The lender will drop the option if investors do not subscribe for Sh500 million. The bank is looking to match demand for long tenor assets to the growing SME sector with long term liabilities. The funds are also expected to support the bank’s expansion plans.

For a private bond the lender does not require approval from the Capital Markets Authority (CMA). A private offer is limited to 100 participants.

ABC Bank increased its profits after tax by 6.5 per cent to Sh279 million in the nine months to December. Its customer deposits stood at Sh15.5 billion and loans were at Sh10.5 billion as at September.

The lender is said to be undergoing a credit rating which will help it bring on board new investors.

The bank is expected to be involved in more capital raising activities in line with Central Bank of Kenya requirements that banks increase their capital base by the end of this year. Money raised through the bond is categorised as tier two capital and is not used in measuring the capital adequacy of a lender.

CBK requires banks to have a capital to deposits ratio of 10.5 per cent and a capital to advances ratio of 14.5 per cent.

“Most institutions are buffing up in reference to the deadline so we are likely to see more capital raising activities,” said Burbidge Capital head of research Vimal Parmar. The bank bought shares in ABC Capital Bank in Uganda to spread its operations beyond Kenya.

It also operates a stockbrokerage business, ABC Capital, and an insurance arm, ABC Insurance.

ABC’s would be the latest private bond issue after that by Mavuno Properties, which owns Mvuli Hotel, which raised Sh80 million last year through a 10-year bond.

Jamii Bora Bank also raised Sh1 billion last year through a limited public offer bond.

Housing Finance, I&M and East African Development Bank also plan to raise debt through fixed income securities this year. Housing Finance has received approval to issue a Sh20 billion bond while the second tranche of I&M’s Sh10 billion debt paper is expected in June. It targets to raise Sh3 billion.

Regional lender East African Development Bank (EADB) has announced plans to issue the first tranche of its Sh10.6 billion multi-currency bond by year end.