Firms plan Sh50bn cash calls on rising business confidence

Kenyan companies will be seeking to raise more than Sh50 billion in the next six months, signalling a build-up of business confidence from last year’s relative inactivity caused by election fears. 

More than 10 local businesses, including banks, have announced plans to raise billions of shillings in pursuit of growth plans that were frozen during 2013’s highly charged elections – offering investors a wide range of options.

Mortgage lender, Housing Finance, tops the list of companies that are hungry for cash with a Sh20 billion bond plan while electricity producer KenGen, National Bank, Diamond Trust Bank (DTB) and Uchumi have announced plans to ask current owners for money through rights issues.

Some companies have also recapitalised their retained earnings by issuing shareholders with bonus shares.

Last week Co-op Bank received its owners’ approval to recapitalise Sh700 million by issuing them with an additional share for each six held by them.

NIC recapitalised Sh270 through a bonus of one for every 10. Others that have made bonus issues are CIC Insurance and South African Liberty Holdings.

Some market watchers have expressed concern that the multi-billion-shilling fundraisers may stretch Kenya’s capital markets to the limit, leading to failure to meet targets.

Enough cash

But analysts like Burbidge Capital’s Vimal Parmar reckon there is enough cash in the economy to support the demand if well-priced for investors.

“The fundraisers are a show of confidence among these firms that the government will somewhat continue growing the economy. If the pricing is right, the liquidity is there to meet the demand,” he said. The bullish business outlook should be an encouragement to President

Uhuru Kenyatta’s government, which is facing the challenge of poor performance in key segments of the economy such as tourism and agriculture.

Tourism has been hugely affected by the persistent wave of insecurity while agriculture is being rocked by poor weather.

The expansion plans indicate growing consumer demand in spite of the continued rise in the cost of goods that pushed inflation above seven per cent last month.

Data from the Central Bank of Kenya shows that credit uptake grew at a faster pace than that targeted by the regulator, underlining investor appetite for cash.

Stock prices

Mr Parmar said that the high stock prices at the bourse signal that it is the right time for listed companies to make cash calls as they could raise higher amounts while still offering discounted prices that are attractive to investors.

KenGen is expected to be the first in the market next month with a Sh15 billion cash call through a rights issue.

The fundraiser, initially scheduled for May, was pushed back to give the company’s management time to negotiate with the government, its majority shareholder, to participate.

In the banking sector, National Bank, also a State-owned firm, is expected first in the market with a Sh10 billion cash call that its shareholders approved last Friday.

The lender plans to use money raised from the issue to buy out expensive preference shares held by the Treasury and the National Social Security Fund (NSSF) as well as finance a planned branch expansion.

Preference shares

Redemption of the preference shares is viewed as crucial to attracting investors who have in the past been crowded out in dividend sharing.

CIC Insurance is also expected in the market in the second half of the year with a Sh3 billion cash call that mixes equity and debt. The funds are earmarked for regional expansion and to finance the underwriter’s huge real estate projects in the pipeline.

Uchumi and DTB are yet to disclose the size of their rights issue though DTB is expected to have completed its issue by July.

Details of Uchumi’s cash call remain scanty because the management has so far only made public the lead arrangers without the timelines.

The issue is estimated to be more than Sh2 billion having risen from the initial expectation of a Sh1.5 billion call.

In the debt market, main issuers will be Housing Finance which is yet to declare how many tranches it will divide the targeted Sh20 billion.

Frank Ireri, the bank’s chief executive, said it was waiting for the government to issue its much-publicised sovereign bond before approaching the market.

Sovereign bond

The sovereign bond is expected to push local interest rates down by reducing government participation in the securities market.

ABC Capital’s corporate finance and advisory manager, Johnson Nderi, however, warns that there is no certainty that the Eurobond will pull down interest rates as the government’s appetite for cash may remain high.

“There are a lot of government projects waiting for cash, so it [the Sh132 billion sovereign bond] may be swallowed up very quickly,” said Mr Nderi.

The list of companies eyeing the debt market includes I&M, which plans to raise Sh3 billion through the second tranche of a Sh10 billion bond.

NIC Bank is also weighing its options for fresh cash injection with a bond or subordinated debt on the table.

Non-listed companies that are looking for funds include Family Bank, which is said to be mulling over a rights issue — its second in three years following a successful one in 2012.

Islamic-based lender First Community and government-owned Consolidated Bank are currently in breach of statutory regulations and are expected to hit the markets for funds to boost their capital levels or curtail their business activity to return to compliance.

Consolidated Bank is yet to issue the second tranche of its Sh4 billion corporate bond it rolled out last year.

In the first half of the year, the list of companies that have raised capital includes Bank of Africa, which concluded a Sh1.7 billion rights issue in April, and manufacturing firm, Bidco, which received Sh1.7 billion from the World Bank’s investment arm, IFC.