Commercial Bank of Africa (CBA) plans to give priority to investors lending it more than Sh100 million in allocation. The minimum subscription of the bond is Sh1 million.
The bond will be listed on the Nairobi Securities Exchange on January 20, 2015.
Commercial Bank of Africa is targeting to borrow Sh10 billion debt from millionaires in the next seven months and raise an additional Sh2.1 billion through a rights issue as it races to comply with additional capital requirement and fund its expansion plans.
In the first tranche of the corporate bond issue, the bank plans to raise Sh3 billion in the next two weeks. The second issue of Sh5 billion with a greenshoe option of Sh2 billion will be made before end of June next year.
The privately-owned lender, associated with the Kenyatta family, plans to give priority to investors lending it more than Sh100 million in allocation. The minimum subscription of the bond is Sh1 million.
“The notes will be issued as dematerialised notes in denominations of Sh100,000 subject to a minimum subscription amount of Sh1,000,000,” reads the information memorandum.
The bond will be listed on the Nairobi Securities Exchange on January 20, 2015.
Additionally, CBA, the largest non-listed bank in the country, expects to raise Sh2.1 billion from its shareholders, estimated to be less than 50, to boost its core capital and total capital ratios. Core capital refers to shareholders input in the bank.
“The group expects to raise additional capital of Sh5.1 billion by the end of the 2014. This will be raised through a rights issue of Sh2.1 billion and Sh3 billion from the bond issue,” read the bank’s memorandum.
As at June this year, CBA’s capital levels had dropped below the minimum required. Its total capital-to-risk weighted assets— a ratio meant to tame the risk appetite of lenders so that they do not over-expose themselves—stood at 11.14 per cent against the statutory 12 per cent.
The minimum requirement will be raised further to 14.5 per cent at the beginning of the year putting pressure on the bank to ensure it injects additional funds in the business.
The core capital-to-deposit ratio stood at 10.1 per cent in June compared to the new ratio set at 10.5 while core capital-to-loan book ratio was at 10.5 per cent equal to the requirement that comes to play in January.
“With increasing competition from its peer banks, there is need to boost the bank’s capital to enable it compete more effectively and defend its market position in its chosen markets,” said the lender.
CBA’s retail business has shot up following introduction of M-Shwari in partnership with Safaricom, a mobile money platform which allows users to save and borrow.
During the launch of M-Shwari, CBA’s management had moved to allay fears that the new business would strain its capital adequacy, arguing that its shareholders were deep pocketed and able to fund the growth.
CBA loan book grew by Sh15 billion in the three months to June, a pace faster than previously recorded by the lender. The bank has grown its loans by an average Sh3 billion each quarter in the last two years. Its customers deposits went up by Sh16 billion.
The bank, however, projects a drop in its full year profits to Sh3.4 billion compared to Sh3.7 billion recorded last year.
As at mid-year, the bank’s profits had dropped to Sh1.2 billion compared to Sh1.4 billion posted in June last year. The drop was attributed to poor performance by the lenders subsidiaries in Uganda and Tanzania.
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