KCB rights issue to test protocol’s effectiveness

The launch of the KCB Bank Rights Issue provides the first test case for the EAC Common protocol’s effectiveness in the capital markets.

The rights issue involving the sale of 877 million shares and targeting to raise Sh15 billion will be sold on the region’s four bourses - Nairobi Stock Exchange (NSE), Uganda Stock Exchange (USE), Dar es Salaam Stock Exchange (DSE) and Rwanda Over the Counter (OTC) market - since Burundi is yet to establish a stock market.

The sale of the rights issue at the Dar es Salaam Stock Exchange is of more importance as it marks the first time Tanzania will allow such a capital transaction to take place.

Previously, Tanzania has locked out any capital transaction due to its exchange and capital transaction restriction regime.

However, Tanzania has opted to open up its capital market in phases with a complete opening up to be completed by 2012.

For instance during the initial public offer (IPO) sale of the Safaricom shares Tanzania investors were locked out of participating unlike their counterparts in Uganda and Rwanda.

Indeed, the Uganda and Rwanda National Social Security Funds are some of the largest institutional investors in Safaricom.

President Kibaki indicated that the launch will pave the way for the deepening of the regional capital markets through widening of the market fro tapping capital a departure from the current situation where businesses focused on their home market fro raising funds.

The KCB Bank rights issue which will be on sale for the next three weeks is expected to act as a barometer to the regional capital market paving the way for other corporate having regional operations to tap the market.

KCB intends to use the proceeds of the sale to strengthen its regional operations, retire expensive deposits and build its capital base to cushion its key statutory ratios from further erosion due to its recent rapid growth.

“The new capital will allow us to strengthen our key prudential ratios which have been greatly reduced due to our significant business growth and expansion over the last few years,” said Mr Martin Oduor-Otieno, the KCB chief executive officer.

The bank’s statutory ratios are marginally above the Central Bank of Kenya requirements.

For instance, the core capital to risk weighted assets and core capital to deposit liabilities ratios are at 14.2 per cent and 11.6 per cent respectively compared to CBK 12 per cent and 8 per cent statutory requirements.

Mr Oduor-Otieno reckons that the bank’s wholesale deposits is one of the most expensive items in their books and the proceeds of the rights issue will be used to retire them.

KCB has operations on Kenya, Uganda, Tanzania, Rwanda and Southern Sudan, which has applied for EAC membership but has to await the outcome of a referendum on seceding from Sudan next year and recognition by the international community before being considered.