KCB shelves shareholders cash call as half-year profit hits Sh10.5bn

KCB Group has postponed its Sh10 billion rights issue indefinitely as its net profit increased 13.6 per cent to Sh10.5 billion in the half year ended June.

The Nairobi Securities Exchange-listed firm said it has suspended the cash call, opting for debt financing and internally generated cash to boost its capital ratios.

“The capital raising is rescheduled,” KCB’s chief executive Joshua Oigara said without indicating when the rights issue plan may be revisited.

“We have strong cash flow and there is interest from international financiers willing to lend us up to $200 million (Sh20 billion).” Announcement of the rights issue, besides the general bear run at the Nairobi bourse, has been linked to the decline in the bank’s share price from Sh40 to the current level Sh31.5 representing a Sh26 billion drop in market value.

If the rights issue had progressed as planned, it would have caused a small dilution to investors who fail to pump in their share of new capital into the bank.

The price decline has in turn made the rights issue less attractive since offering a discount price to incentivise shareholders’ participation would have potentially set a price below the bank’s current net asset value per share of Sh29.6.

Mr Oigara said the move to pay part of its dividends for the year ended December through issuance of shares had also saved the bank Sh1.5 billion, further boosting cash to beef up the capital levels.

The lender’s total capital to total risk weighted assets, which had stayed above the regulatory minimum by the thinnest margin, improved to 17.7 per cent as of June compared to 16.5 per cent the year before against the floor of 14.5 per cent.

Suspend the rights issue

KCB said it is likely to close the debt deal, of an undisclosed amount, by September. The loan is expected to mature in seven years, with development finance institutions among those interested in providing the debt to KCB.

The move to suspend the rights issue means the bank will continue to retain a large part of its earnings to boost its capital, with the dividend payout for the year ended December standing at 31 per cent of the total Sh19.6 billion net profit. Mr Oigara said the bank expects to build on the performance in the first half to close the year with strong earnings.

Profit growth in the half year was largely driven by increased lending and restrained costs. The bank’s loan book increased 8.3 per cent to Sh347.3 billion, helping interest income to rise 22.3 per cent to Sh31.6 billion.

Operating expenses increased 1.8 per cent to Sh17.8 billion. Loan loss provision dropped by Sh522.1 million to Sh2 billion, helping to hold down overall expenses even as other items like staff costs went up.

The reduced provisions came despite gross bad debts jumping 36.3 per cent to Sh32.9 billion, with Mr Oigara saying the stock of non-performing loans will come down by the end of the year. He said the defaults are concentrated in three key accounts, with delay in government payments to contractors partly blamed for the rise in the bad debts.

KCB’s interest expenses jumped 42.1 per cent to 9.1 billion despite customer deposits dropping 2.1 per cent to Sh433

4 billion, indicating a surge in rates paid to savers. The subsidiaries’ contribution to group net profits declined to Sh725 million from Sh993 million in the wake of currency depreciations and political instability in markets like Burundi and South Sudan.
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