Capital Markets

Jamii Bora Bank targets Sh500m from rights issue

The bank is seeking to create 1.2 million shares that will be sold to existing shareholders. Photo/FILE
The bank is seeking to create 1.2 million shares that will be sold to existing shareholders. Photo/FILE 

Jamii Bora Bank, formerly City Finance Bank, is planning a rights issue to help finance a turnaround aimed at moving it into the profit zone.

The bank is seeking to create 1.2 million shares that will be sold to existing shareholders as it targets between Sh350 and Sh500 million before December.

It hopes to beef up its capital, expand its outlet and rebrand its business as it races to shake off its loss making tag.

The bank has been making losses since 2005 and brought in new shareholders in 2008 to shore up its eroded capital base and sharpen its competitive edge in the face of growing competition in the banking mart.

The new shareholders including Jamii Bora Trust, Scandinavian Group and local investment firm Baraka Africa Fund (BAF) have settled in and restructured the bank including merging its operations with micro finance business run by Jamii Bora Kenya.

“The money will help grow our capital levels and provide working capital the bank badly needs to support its growth plans,” said a director who requested anonymity.

The Banking Survey 2010 has ranked the bank as one of the worst performing on the income front controlling a measly 0.07 per cent of the industry’s total income.

Start of trouble

Troubles at the bank started in 1998 after it was placed under statutory management due to failure to meet its financial obligations.

The bank was also adversely mentioned in the multi-billion shilling Goldenberg scandal resulting into mass withdrawals.

In 1998, Central Bank of Kenya recommended the closure of City Finance bank, but its high net worth investors, who feared losing their cash, crafted a rescue plan that saw depositors holding more than Sh100, 000 convert their deposit into equity.

The result is that the bank ended up with about 900 shareholders with a huge chunk of them being default investors—who remained unsupportive of the bank’s growth plans prompting its search of the strategic investors.

At present, these shareholders have a 20 per cent stake, Jamii Bora Trust (25 per cent), Scandinavian Group (40 per cent) and 15 per cent for BAF—a five year-old investment group founded by young top business executives.

These new shareholders will also have to grow the bank’s core capital to a minimum of Sh1 billion by 2012 from its December level of Sh315 million.

Besides complying with regulatory requirements, the high capital levels will help the bank rev up its lending now that it’s planning an expansion blitz without hurting its statutory ratios.

Jamii Bora and the Scandinavian Group, for example, bought into the bank with an eye on the licence—which allows it to tap deposits to grow their lending business.

Previously, Jamii Bora relied on bank borrowing to serve its lending that was targeted at the bottom end of the market.

It also lost some its former clients to commercial banks after turning their businesses around.

“For that reason Jamii Bora has taken the decision to become competitive with those banks so it can keep its successful members,” said Jamii Bora in a brief to partners last year.

This set the stage for the battle for control of the bottom end of the market placing Jamii Bora Bank in a head-to-head contest with Equity and Family Finance banks.

For BAF, having the bank sit on its portfolio was a major catch since the investment firm had been desperately angling for a piece of the lucrative banking market.

Analysts reckon that City Finance Bank was a good buy, arguing that the bank has plenty of room for growth despite it’s under performance.

It posted a loss of Sh7 million in 2009 compared to a loss of Sh3 million a year earlier.

People familiar with BAF say the investments group is looking to turn around the bank and exit either through an IPO or private equity transaction, which promises to offer outsized gains to the fund rekindling the transformation of Equity Bank, which minted a club of millionaires after its listing in 2004.