KCB rights issue falls short of the Sh15 billion target

Failure by retail and foreign investors to take up new shares in Kenya Commercial Bank’s third rights issue in six years led to the offer’s under subscription, analysts say.

KCB managed to raise Sh12.4 billion against a target amount of Sh15 billion with stockbrokers indicating that retail investors who form the dominant investor profile in the bank’s share registry opted to sit out the offer.

Foreign investors also failed to take up the bulk of their rights on uncertainty over the August 4th referendum.

Although institutional and high net worth investors are said to have taken up all their rights in the offer, retail investors’ reluctance to mop up the additional shares further hampered a 100 per cent success rate for the offer.

But the country’s biggest bank by assets said it was content with performance, adding that it earlier indicated that its target was a 50 per cent mark or Sh7.5 billion.

“There was less participation from foreign investors due to the referendum,” said Lucas Otieno, the CEO of African Alliance Kenya Securities.

“But given it was a big issue and the bank had indicated that it was looking for 50 per cent subscription, I would term it a big success.”

The bank’s share prices stood at Sh18.85 at the Nairobi Stock Exchange (NSE) compared to Sh19 at Monday’s close.

KCB plans to use the funds to support its regional expansion and to boost its minimum capital requirements to allow double its loan book and its deposits.

Money raised

KCB has subsidiaries in Tanzania, Rwanda, Uganda and South Sudan.

It raised Sh5.5 billion in 2008 and Sh2.45 billion in 2004 from the capital markets.

Stockbrokers reckon that retail investors reduced appetite for the equities market coupled with fears over dilution may have been the rights issue’s undoing as the bank was adding 887 million new shares.

The injection of a further 887 million KCB shares will increase the total shareholding from the current 2.2 billion to Sh3.1 billion.

Financial analysts had projected that the bank’s earnings per share would be significantly diluted in the short-term.

KCB posted a net profit of Sh2.8 billion in the six months to June, compared to Sh2.4 billion in the same period last year.

Retail investors have shunned the stock market since last year due to the slump in share prices as they tend to prefer a speculative market with wild price swings.

KCB’s performance sets the tone for upcoming right issue with pricing of offers taking centre stage.

“The key is pricing. The pricing has to be right if investors are to be enticed,” says Eva Njuguna, the head of equity trading at Sterling Investment Bank. Upcoming rights issues include TPS Serena (Sh1.2 billion), Standard Chartered Bank (Sh2.5 billion) and Kenya Power and Lighting Company (Sh10 billion).

The issues are set to happen in the second half of the year as firms race to raise capital to take advantage of opportunities in a recovering Kenyan economy.

Although there has been a recent downturn in market activity in both the stock and bond markets, analysts say investors are gearing up for up coming issues which also includes Kenya’s largest infrastructure bond to date.

Infrastructure bonds

The debt markets will see the debut of a Sh31 billion government infrastructure bond, a Sh10 billion Housing Finance corporate bond and the second tranche of the Safaricom bond which will be valued at Sh7 billion.

At an announced coupon rate of six per cent for the upcoming nine year infrastructure bond, debate is already raging whether the offer’s pricing will attract widespread investor participation.

Signs of tightening liquidity in the market are stoking concerns among debt and equity issuers as the KCB rights issue and the ongoing infrastructure bond act as market testers to gauge investor appetite. 

And if the KCB rights issue is anything to go by, then the pricing structures of upcoming offers will have to be enticing enough to rope in increasingly picky investors keen on seeking out the best investments in a tightening liquidity environment.