KCB Group has booked a Sh1.5 billion capital boost after its shareholders opted to forego their cash dividend payout in favour of the lender’s stock.
The Nairobi Securities Exchange (NSE)-listed bank had declared a total dividend of Sh2 per share for the year ended December, of which Sh1 per share was to be disbursed in cash.
The lender gave shareholders the option of taking the remaining Sh1 per share in cash or in the form of its stock at a conversion price of Sh38, which represented a five per cent discount on the trading price of Sh40 in early March.
KCB’s board of directors, which encouraged shareholders to take half of their dividends as shares in what is technically known as scrip dividend, said the move will help the company save cash to fund its operations.
“The declaration of the scrip dividend is part of KCB Group’s strategy to conserve cash payout from the company’s retained profits in the light of its commitment to business growth, and in order to allow its shareholders to derive value on account of higher dividend in future due to increased shareholding,” the company said in a circular to shareholders.
“The KCB Group board considers that the capitalisation of the portion of the proposed final dividend for the year ended December 31, 2015 is in the best long-term interest of shareholders.”
Besides the Sh1.5 billion cash boost from the special dividend, the bank is also slated to raise Sh10 billion later this year through a rights issue to boost its thinning capital levels.
The lender’s total capital to total risk-weighted assets ratio stood at 15.4 per cent as at December 2015, just 0.9 percentage points above the regulatory minimum of 14.5 per cent.
For investors, the decision to go for shares instead of cash was a test of their confidence in the management’s ability to reinvest the sums at more attractive rates of return than shareholders could obtain elsewhere on their own.
Those who wanted to get all their dividends in cash had to specifically apply for the option while those who wanted payment in form of shares did not have to take any action.
KCB said participation in the scrip dividend stood at 54 per cent, with those allotted shares taking up an equivalent 1.3 per cent stake and causing a small dilution for all-cash takers.
Taking up the scrip dividend will give the investors a larger claim on KCB’s assets and future earnings besides increasing their claim on capital gains or exposure to losses in line with the stock’s volatility.
The investors, for instance, have already suffered a combined capital loss of Sh236.8 million representing a 15.2 per cent decline based on KCB’s share price drop to the current level of Sh32.2.
New shares created under the scrip dividend will be allotted today (Friday) when the cash dividend will also be paid.