Shareholders hold on to rights in DTB Sh1.8bn cash call

The window for trading Diamond Trust Bank (DTB) rights closed Tuesday with less than one per cent of the 24.5 million rights sold in the market, a pointer to strong investor appetite in the cash call seeking to raise Sh1.8 billion.

Analysts predict strong subscription in the issue after majority of shareholders opted to exercise their rights. Only 144,600 rights were sold in the programme that opened on July 16.

“There have been very few rights traded in the market which is a strong indication that the shareholders will exercise their rights,” said Francis Mwangi, a research analyst at the Standard Investment Bank.

At the close of the trading window Tuesday, the rights were selling at Sh26 above the Sh74 offer price, which was higher than the Sh95 average closing price for the DTB share.

The rights offer price of Sh74 was at a 17.84 per cent discount on the average price of the share for the six-month period from the beginning of May this year.

“Rights have been more expensive than the shares, showing that investors are committed to taking up the additional shares,” Mr Mwangi added.

Rights are additional shares sold by a company to raise funds from existing shareholders, often at a price lower than the prevailing market price.

Shareholders who do not wish to acquire the additional shares can sell in the open market within a specified window period, like in the just-ended DTB case.

The situation means that DTB, ranked as Kenya’s tenth largest bank was on track to raise the targeted Sh1.8 billion it plans to use to grow its branch network, product offering and fund expansion into five new countries Alkarim Jiwa, the bank’s general manager for finance and planning, says that the thin volumes of trade on the rights is a stamp of confidence by the shareholders who have tended to be “loyal” historically.

“DTB shares have historically been very few in the market because our investors are very loyal, an indication that they will take up their rights,” said Mr Jiwa, but could not comment on the likelihood of an oversubscription.

This was the lender’s third rights issue after it raised Sh2.3 billion through the sale of 15.5 million shares in an oversubscribed cash call in 2006.

In 2007, it was also able to raise another Sh2.9 billion through the sale of an additional 23.29 million shares in another rights issue that was oversubscribed by 78 per cent.

Nasim Devji, the bank’s managing director, told the Business Daily at the beginning of the rights issue window that the institution was seeking to launch its agency banking network by October and increase its branch network to 90 by the end of the year.

michira@ke.nationmedia.com