Family Bank returns to shareholders for cash
Family Bank has made yet another cash call to its shareholders, as the lender seeks to raise an estimated Sh1.2 billion from the market.
An information memorandum for the rights issue seen by the Business Daily says the bank will use the funds to finance expansion and strengthen its balance sheet.
This will be the second cash call by Family Bank in three years, after a similar one in 2009 raised Sh1.5 billion. The rights issue will see the bank sell 40,348,740 new shares to shareholders on the company’s register as at May 31, equivalent to about one share for every six held.
Given its over-the-counter (OTC) price of between Sh38 and Sh35 per share, the bank could be targeting to raise up to Sh1.5 billion.
Rights issue offers are, however, ordinarily discounted to attract shareholder participation, and a discounted rate of about Sh30 per share could see the lender raise at least than Sh1.2 billion.
The rights issue is expected to start Friday and will close on September 12.
Transaction advisors and selling agents Dyer and Blair said that they could not give a specific rights price since this is still being determined based on investor demand.
“We are still doing book building and the price in this process will be determined by investors,” Dyer and Blair chief executive Paul Orem told the Business Daily.
Family Bank has 243 million issued and fully paid up shares and should the rights issue be successful, this will increase to 283 million.
Refunds for any oversubscriptions, update of the share register and trading on the OTC market are expected to take place on October 4.
Johnson Nderi, a research analyst at Suntra Investment Bank, said that it is difficult to estimate an offer price when using book building since the process resembles an auction where investors determine the prevailing price, but the average price on the OTC market can give an indicator of the rights price and by extension how much a firm is seeking in additional capital.
“The offer price should not vary greatly with the last traded price,” said Mr Nderi.
The information memorandum says that the money will be used for a technological update, expansion and strength its books.
“The Bank intends to finance deployment of an Internet banking platform, Visa Card switching platform, further branch expansion and agency banking channel rollouts,” says the chairman’s statement in the information memorandum.
“The Bank shall also leverage on the funds to raise more deposits and grow the loan book further in our key market segment,” the information memorandum adds.
This is the second rights issue after the 2009 cash call that saw shareholders pump in Sh1.5 billion, which was later followed by an injection of Sh1 billion via a private share placement in September 2011.
Tunis-based Africinvest, Netherlands’ FMO, and Norway’s Norfund made a joint equity investment of Sh1 billion in the bank that gave them a 22.4 per cent stake.
Family Bank chief executive Peter Munyiri said in May that the bank wanted to raise money by both equity and debt to finance its expansion.
The bank’s loan book stood at Sh16.3 billion as at the end of 2011, a 59 per cent increase from Sh10.3 billion in 2010.
It is expected that shares in the bank will be listed on the Nairobi Stock Exchange (NSE) in 2013.
This is the second rights issue by a commercial bank opening a day after Diamond Trust Bank’s Sh1.8 billion cash call closed.
NIC Bank plans to raise Sh2 billion, CFC Stanbic and Standard Chartered are other banks that are going to seek money from their shareholders for reasons ranging from cheaper sources of funds to financing expansion.
Consolidated Bank managed to raise Sh1.7 billion through a medium-term note that is expected to begin trading on the NSE on Monday.
Francis Mwangi, a research analyst at Standard Investment Bank, said that the level of capital raising by banks in a single year is an indication of tightening competition in the industry.
“We have seen banks come out to raise capital and the common theme has been we need more capital to sustain growth,” said Mr Mwangi.