Barclays freezes plan to raise Sh2bn from stock market

Barclays Bank of Kenya (BBK) has put on hold plans to raise the final Sh2 billion of a medium-term note because of unfavourable market conditions and the fact that it has sufficient funds.

The bank issued a Sh5 billion, seven-year bond to support long-term lending to sectors such as the property market, raising Sh1 billion in November 2007 and another Sh2 billion in June 2008. The first tranche has a floating rate of 0.6 percentage points above the 91-day Treasury bill while the second attracts a fixed rate of 8.7 per cent.

“In the short term we have put on hold our plans to raise the remaining Sh2 billion because it is very expensive to issue the bond at this particular time and our capital and liquidity ratios are healthy,” said Yusuf Omari, the bank’s chief financial officer.

“We will wait for more favourable market conditions since we are in a strong cash position,” he said. Mr Omari added that the remaining Sh2 billion will mainly be used to support longer-term lending such as mortgages which typically last for more than a decade.

The bank’s core capital to total risk weighted assets now stands at 24.1 per cent, up from 13 per cent in 2007 against the statutory minimum of eight per cent. Its total capital to total risk weighted assets now stands at 27.8 per cent, nearly doubling the 14 per cent recorded in 2007 and against the minimum requirement of 12 per cent.

It posted an 11 per cent rise in pretax profit to Sh12.01 billion in 2011 and raised total dividend per share by 10 per cent to Sh1.50. But its gross pretax profit and net profit slid by 11 per cent and 23 per cent during the period under review, due to the one off sale of custody business in the previous year. It will also pay investors a special dividend of Sh0.6 for the year ended December highlighting its healthy cash position. The sharp rise in interest rates has dampened fund raising in the capital markets as companies seek to avoid the high interest rates they would be forced to offer to attract investors.

Tighten liquidity

Interest on short and long term government paper have risen to above 16 per cent following the move by the Central Bank of Kenya to tighten liquidity in what has also raised interest on wholesale deposits to about 25 per cent.

No corporate bond has been issued since interest rates started surging in the fourth quarter of last year. The government has also backed down from issuing new long term bonds, preferring to use short term paper such as the 91-day and one-year attracting interest of about 20 per cent.

Analysts say a bank issuing a corporate bond at current rates cannot profitably use the money on mortgage lending where interest rates stand at about 22 per cent.

vjuma@ke.nationmedia.com