Consolidated eyes Sh1.5bn in rights issue

Consolidated Bank has disclosed it is targeting to raise Sh1.5 billion in a rights issue next year to bridge a deficit in statutory capital requirements.

The bank has disclosed the amount in a tender document calling for transaction advisory services for the issue, which is one of the options on the table to boost its capital base.

Consolidated Bank has also the option of raising a further Sh2 billion in the second tranche of its bond issue which got regulatory approval.

“In line with Strategic Plan 2015–2019, the bank plans to raise additional capital of Sh1.5 billion in 2016 to ensure compliance with statutory requirements and support business growth as envisaged in the strategy,” said the bank in the call for the tenders which closed on December 1.
The state-owned bank has been planning the funds after holding below statutory capital over the past three years.

Its core capital to risk-weighted assets stood at 7.7 per cent against the mandatory 10.5 per cent at the end of September.

The proceeds of the rights issue will go to improving this ratio, given core capital (tier one capital) has to be contributed by shareholders.

Further, total capital to risk weighted assets stood at 8.7 per cent against the mandatory 14.5 per cent, a ratio that can be raised through cash from both a rights and a bond issue.

In August, the management of the bank said it was emphasising raising tier-one capital through the rights issue as opposed to first tapping into the second tranche of the corporate bond.

“The bank’s current focus is, therefore, on raising tier-one capital that affords greater leverage from a prudential and growth perspective,” said the lender.

The bank got Sh500 million last year in a capital injection from the government, which owns 50.2 per cent stake in the lender through the Deposit Protection Fund. If the government takes up its full allocation of the proposed rights, it will fork out a further Sh750 million at least.

The first tranche of the corporate bond which was issued in 2012 raised Sh1.7 billion against a target of Sh2 billion.

READ: Consolidated Bank grapples with low capital levels as profit declines 55pc

The bank’s other shareholders include the National Social Security Fund (NSSF) which holds an 11.2 per cent stake, the Kenya National Examination Council (KNEC) with a 3.5 per cent stake and a 9.7 per cent holding by the defunct Kenya National Assurance.

Kenya Pipeline Company owns 3.6 per cent of the bank while the National Hospital Insurance Fund (NHIF) holds three per cent.

The bank reported a Sh16 million profit after tax for the nine months ended September, compared to a loss of Sh154 million over the same period last year.

Its profit was, however, down quarter on quarter having stood at Sh35 million in the six months to June.

Consolidated Bank was formed in 1989 and took over nine financial institutions which were on the brink of collapse, assuming all their assets and liabilities.

These institutions were Jimba Credit, Citizen Building Society, Nationwide and Union Bank of Kenya. The others were Kenya Savings and Mortgages Company, Estate Finance Company, Estate Building Society, Business Finance and Home Savings and Mortgages.

The planned capital raising comes at a time the Treasury is considering merging Consolidated with fellow State-owned lenders National Bank of Kenya and Development Bank of Kenya, as per the recommendations of the parastatal review task force.