Imperial Bank to pay stiff interest on its bond issue
Imperial Bank’s Upper Hill branch in Nairobi. PHOTO | FILE
What you need to know:
Once listed, the 5.25 year bond will have the highest annual returns among those on the Nairobi Securities Exchange.
Second-tier Imperial Bank will pay a stiff 15 per cent interest on its Sh2 billion bond as it seeks to raise cash to shore up capital to meet statutory ratios and grow business.
The bank associated with the wealthy Popat Family has seen its ratio of total capital to total assets constrained because of the new rules that increased the statutory requirement to 14.5 per cent from January this year.
“The fixed coupon rate of 15 per cent is quite good given the current market environment. Chase Bank gave 13.1 per cent, but we have seen that interest rates have risen, so the rate by Imperial Bank should be attractive to investors,” said Mercyline Gatebi, a research analyst at Genghis Capital.
Ms Gatebi said global interest rates were expected to go up further once the US Fed takes a decision to push interest rates up next month.
Once listed, the 5.25 year bond will have the highest annual returns among those on the Nairobi Securities Exchange. Real People recently floated a partially successful bond whose fixed portion — which is what most investors took — was priced at 13.65 per cent coupon rate.
Home Africa also raised money through a bond with a 17 per cent coupon rate using the private placement method, meaning that it is not listed on the bourse.
The bank has seen the difference between its existing total capital-to-total assets ratio of 16.2 per cent being only 1.7 percentage points above the 14.5 per cent statutory requirement. In effect, this means it does not have a wide latitude to lend more.
Previously, the requirement was 12 per cent, but the Central Bank of Kenya raised the ratio in line with new prudential rules that became effective at the start of this year.
The cash is also to be used for regional expansion. “With the funds raised, the bank will be able to realise its regional expansion strategy and will be better placed to enrich its offering,” said chairman Alnashir Popat.
The bank is targeting local institutional and individual retail investors as well as fund managers to participate in the bond issue.
The Imperial Bank bond is intended not only to contribute to increasing the bank’s core capital, but also cash for day-to-day operations such as lending. The bank plans to increase its asset base using the cash.
However, this year has seen the pace at which the institution has grown its asset base slow down. Between January and June, total assets grew by 8.8 per cent to Sh70.3 billion, down from an 11.8 per cent growth in the period between last June and last December.
According to a notice published in the media, the sale of the one-tranche bond began yesterday and closes on September 17.
The minimum investment required is Sh1 million. Payment to investors in the instrument on the basis of the 15 per cent coupon rate will be done once every six months.
