Imperial seeks Sh20bn deposit conversion into equity

What you need to know:

Shareholders holding in excess of Sh1 million in the bank as well as the bondholders would have 22.8 per cent of their cash converted to class B shares while the rest of their savings would be held as medium-fixed deposit receipts (FDRs).
The FDRs will mature over a three-year period; being 20 per cent in the first year and the rest equally over the next two years.

A recovery plan drawn by Imperial Bank owners has revealed new details including the proposed conversion of Sh20.3 billion of customer deposits to equity with the rest of the amount, Sh57.7 billion, paid out over three years.

The Central Bank of Kenya’s (CBK) initial payout to depositors with less than Sh1 million in December appears to be in line with the plan which states the collapsed lender has a funding gap of Sh38.5 billion.

The CBK and shareholders of Imperial differ on the amount to be injected by the owners though. The shareholders are willing to inject Sh10 billion, lower than the customer deposits to be converted, with the CBK insisting the owners have to bear a higher burden.

The plan indicates each of the shareholders holding in excess of Sh1 million in the bank as well as the bondholders would have 22.8 per cent of their cash converted to class B shares while the rest of their savings would be held as medium-fixed deposit receipts (FDRs).

The FDRs will mature over a three-year period; being 20 per cent in the first year and the rest equally over the next two years.

“Sh20.4 billion of depositor balances will convert into Class B ordinary shares. The balance of the deposits (circa two-thirds) will be turned into medium-term FDRs (through a scheme of arrangement) repaid with varying maturities,” reads part of the plan.

The FDRs will attract an interest of five per cent.

Half the value of the Class B shares will be redeemed in the first five years with the remaining amount paid out at two per cent into perpetuity.

Under the plan, corporate bond holders will have Sh461 million of their investment converted to the class B shares while the remaining amount, Sh1.6 billion, will be settled in 2020.

READ: Imperial Bank owners and CBK feud over reopening delays

The class B shares will have no voting rights, will not be entitled to dividends but the holders can access loans from the bank at a discounted rate.

The CBK though has stated it will be making its announcement on the way forward for the remaining depositors by end of March.

“The remaining deposits and loans would be subject to a due diligence review by Kenya Commercial Bank (KCB) and Diamond Trust Bank (DTB), which would inform what portions could be transferred to KCB and DTB and under what terms,” said the CBK in a notice released early December.

Implementation of the shareholder’s plan would mean a customer who was holding Sh2 million in the bank would receive Sh1 million in full under the first pay-out while the rest would be collected in instalments.

Of the remaining Sh1 million, Sh230,000 would be converted into Class B shares and Sh770,000 to FDR’s. Receipts worth Sh154,000 (20 per cent) would mature this year and Class B shares valued at Sh11,500 (five per cent) would be redeemed.

The shareholders estimate they would pay out Sh12.8 billion to depositors this year if the plan is adopted.

It had been estimated that Sh8.6 billion would be paid out in the first pay-out plan but of the targeted 44,300 depositors only 10,000 had lodged claims with the Kenya Deposit Insurance Corporation by end of year.