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National Bank share premium to earn Treasury, NSSF Sh1.4bn

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Suspended NSSF managing trustee Richard Lang’at. PHOTO | FILE |

Treasury and the National Social Security Fund (NSSF) are set to earn a windfall of Sh1.4 billion from the redemption of their preference shares in National Bank.

National Bank of Kenya (NBK) has agreed to pay a 25 per cent premium on each of the preferred stocks that have a par value of Sh5 apiece – translating to a redemption price of Sh6.25 per share.

This means the Treasury will book a margin of Sh1.1 billion from the redemption of its 900 million preference shares while NSSF will earn a gain of Sh293.7 million given that it holds a fifth of the total preferred stocks.

“We agreed to redeem the non-cumulative preference shares at 25 per cent premium,” said the managing trustee of NSSF and director of NBK Richard Lang’at in an interview. In total, the government will rake in Sh5.6 billion from the restructuring exercise while the statutory workers’ retirement fund will receive Sh1.4 billion.

NBK’s 1.135 billion non-cumulative preference shares were created in 2003 when long-term loans totalling Sh5.675 billion advanced to the bank by NSSF and government were converted into equity.

National Bank shareholders in May unanimously approved a plan to redeem the lender’s 1.135 billion preference shares using funds from the planned Sh13 billion cash call set for end of this year.

The Sh7.09 billion total cost of redeeming NBK’s preferential shares accounts for more than half of the expected proceeds from the rights issue – leaving the bank with Sh5.9 billion to fund growth.

“This will clean up the books and the value of the bank will go up. NSSF is ready to defend its entire rights,” added Mr Lang’at. NBK chief executive Munir Ahmed declined to comment on the matter.

READ: National Bank profit up 17pc as loan book doubles

The 25 per cent returns for the Treasury and NSSF add to billions in dividends that the preference shares have earned the State and NSSF since 2003.

National Bank is ranked 11th in size out of Kenya’s 44 banks, with 0.5 million deposit accounts, 76,000 loan accounts and a collective market share of 3.39 per cent; according to Central Bank data.

The redemption of NBK’s preferential shares is set to mark the final chapter of the lender’s restructuring plan mooted in 1998 to deal with the huge pile of bad loans it had accumulated.

READ: National Bank risks crisis after cash call delay

The non-cumulative preference shares issued are not quoted on the stock, cannot be converted to ordinary stock and do not have voting rights. However, they are entitled to a dividend negotiated annually but capped at six per cent per year on the par value of each share.

NBK paid a special dividend of Sh0.075 per share (1.5 per cent) to government and NSSF as preference shareholders totalling Sh85.1 million and a further Sh0.33 per share or Sh377.9 million for their ordinary shares for the period to December 2013.

The two preferred shareholders harvested a total of Sh463.08 million in dividends last year compared to Sh312.1 million in 2012, a growth of 48.4 per cent.

“In the current scenario, most of the dividends declared go to the preference shareholders because they share the balance after preference dividends are paid pari passu,” Mr Ahmed said at the lender’s AGM in May.

Treasury secretary Henry Rotich had earlier said the government would use proceeds from redeeming its preference shares to take part in the rights issue.

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