Consolidated Bank in Sh6.3bn capital drive

Consolidated Bank chairman Eunice Kagane when she announced getting CMA approval for the Sh4 billion corporate bond on June 25, 2012. Photo/Diana Ngila
Consolidated Bank chairman Eunice Kagane when she announced getting CMA approval for the Sh4 billion corporate bond on June 25, 2012. Photo/Diana Ngila 

Consolidated Bank has launched a Sh6.3 billion re-capitalisation and expansion drive that will be financed through a corporate bond, low-cost loans and a cash injection by the Treasury.

The State-owned lender wants to raise its capital ratios to provide room to grow the loan book and deposits, which stood at Sh9.2 billion and Sh12 billion, respectively, at the end of last year.

On Monday, the bank said the Sh4 billion medium-term corporate bond approved by the Capital Markets Authority (CMA) last week would be issued in two tranches of Sh2 billion each.

“The bank is talking with several possible lenders on this including the East African Development Bank, PTA Bank, Industrial and Commercial Development Corporation (ICDC) for possible financing,” said Mr Wachira.

The European Investment Bank (EIB) recently advanced the lender an Sh800 million loan.

The date of the corporate bond issue, the coupon rate and other details of the first tranche are yet to be set, said Consolidated Bank’s CEO Ndegwa Wachira on Monday.

The bond, intended for long-term financing, is to be listed on the Nairobi Securities Exchange (NSE).

Mr Wachira said the bank is at an advanced stage in negotiating with the Treasury for a loan of at least Sh1 billion. Another Sh500 million will be raised from local lenders.

“The release of the medium term notes is part of an extensive capital-raising initiative that the bank is implementing. The Sh4 billion bond will also complement the bank’s recent partnership with the EIB of 6.5 million Euros (Sh800 million),” said a statement issued by the bank.

The EIB credit line is available to borrowers for a minimum of four years and maximum of 10 years with asset finance facilities having a minimum of three years.

The bank is looking to expand business in the small and medium enterprises, education, hospitality as well as mortgage and personal lending, said Mr Wachira.

“There has been strong demand from our customers for financing and as an SME-focused bank, we currently have a pipeline of over Sh2 billion of approved credit facilities awaiting disbursement,” said Mr Wachira.

In the past five years, the bank’s net profit has grown by nearly 10 times to Sh150 million in 2011 compared to a paltry Sh16 million in 2006.

The bank said last December that it was looking to float the bond once interest rates went down and stabilised, a development that has been taking place in the past few months.

A Treasury bond of five years, which is the longest tenor of a medium term note, was issued last month at a fixed coupon rate of 11.855 per cent.

Consolidated Bank could benefit from issuing at a coupon close to government paper – whose rates are lower than corporate bonds – if it is fully guaranteed by the state that also fully owns it through the Deposit Protection Fund and parastatals.

Mr Wachira said the long-standing plan to privatise the firm is yet to materialise because a privatisation commission has not been set up.

“We have done what is required to prepare the institution for privatisation including valuations. But the privatisation commission is not yet set up and that is holding back things,” said Mr Wachira.

Two months ago, Esther Koimett told the Business Daily that privatisation of companies including Consolidated Bank had been held back by the processes.