NBK to pay a premium on Sh5.7bn preference shares

The Treasury and NSSF are set to earn a premium from the redemption of their preferential shares in National Bank (NBK), chief executive Munir Ahmed has said.

NBK intends to spend part of the Sh10 billion that it will raise from the upcoming rights issue to pay off the redeemable shares held by NSSF and the Treasury.

The three parties are yet to agree on final details of the transaction, but Mr Ahmed said they have agreed “in principle” to redeem the preferential shares which have been a drain on NBK’s cash flows as they carry an annual interest payment.

“It would be illogical to expect that people who have invested in us for so long, and who we were not paying a dividend over the years, to simply get paid their initial capital,” said Mr Ahmed on Wednesday in an interview.

The 1.13 billion preference shares resulted from a rescue package arranged for NBK and have been a fixture on the bank’s books for the past 10 years.

The bank has since turned around, and its net profits for the full year to December grew 50 per cent to Sh1.1 billion from the 2012 earnings of Sh731 million.

The par value of Treasury’s portion of the preference shares is Sh4.5 billion with NSSF’s claim at about Sh1.2 billion, adding up to a total of Sh5.7 billion.

“We will pay the two shareholders a premium that they feel is necessary and one that the bank can afford. Further negotiations and a final decision on this will be made in the coming month,” added Mr Ahmed.

Redeeming the preference shares will take the lender closer to closing a rescue plan initiated in1998 when it was in the red, weighed down by non-performing loans that were advanced to political cronies of former president Daniel arap Moi.

READ: Treasury to earn Sh4.5bn from National Bank debt settlement

The preference shares have been earning a negotiable interest rate of between zero and six per cent annually besides entitlement to dividend earnings like the ordinary shares.

Ordinary shareholders of the Nairobi Securities Exchange-listed lender have however had to wait for their turn to earn dividends during this period.

In the past two years, for instance, the Treasury and NSSF earned Sh770 million from the preference shares or five times the amount paid to the 45,000 holders of NBK’s ordinary shares.

The obligation on preference shares has scared off potential investors who would have been interested to put money in the lender with an eye on dividend earnings.
Redeeming the preferential shares is expected to have a huge bearing on the rights issue due next month.

“With those preference shares on the balance sheet, the bank will not be able to raise additional capital,” said Mr Ahmed.

“This is because the economic benefit of the cash call with accrue to the preference shares while the rights issue is all about ordinary shareholders. The success of our rights issue depends on the preference shares being there or not.”

Mr Ahmed was speaking shortly after the launching of a partnership between NBK, Postbank and Kenswitch on Wednesday.

NBK customers will now transact through 800 Postbank agents and 99 branches across the country, giving easier access to the lender.

The partnership with Kenswitch gives National Bank customers access to more ATMs, point of sales terminals and e-commerce payment platforms that have been inter-linked with 35 other financial institutions.