Capital Markets

KCB makes comeback to the capital markets

KCB banking hall. KCB Capital, a subsidiary of banking group KCB, has been granted an investment banking licence. FILE
KCB banking hall. KCB Capital, a subsidiary of banking group KCB, has been granted an investment banking licence. FILE 

KCB Capital, a subsidiary of banking group KCB, has been granted an investment banking licence, marking the lender’s return to the bourse after a three-decade absence.

The industry regulator, Capital Markets Authority (CMA), said that Kenya’s largest bank by capitalisation has met all the requirements to operate an investment banking unit. The lender sold its investment banking arm to Dyer & Blair in 1983.

The new unit is expected to increase the bank’s revenue streams through fees earned from advisory services.

“KCB Capital Limited will offer advisory services on public offering of securities, corporate financial restructuring, takeovers, mergers, acquisitions and privatisation, corporate financing options including issuance of equity or debt securities or loan syndication, engaging in business of stockbroker and dealer, promoting or arranging or issuance of securities, providing investment advisory services,” said a statement by the CMA.

In 2011, when the bank first announced its intention to re-establish its investment banking arm, it said that there was high demand for capital by governments in the region seeking funds for capital-intensive infrastructure projects, opening up a huge opportunity for deal makers.

Analysts say that KCB, which already has a custodial service, may be looking a revenue boost by channelling commissions paid to stockbrokers back to the group.

“Their choice to apply for an investment banking licence is they feel maybe they pay a lot of money in terms of fees and commissions to the existing brokers and they could benefit from this if they had their own investment banking arm thus giving a boost to their top line from a group perspective,” said Geoffrey Maina, a research analyst at Old Mutual Securities.

KCB revived the effort to hire a head for the investment bank unit last month, giving an indication of the areas of business the unit is likely to concentrate on.

Part of the requirements included undertaking origination, advisory and structuring, book running, lead arranger, and agency roles with respect to corporate, parastatal and other institutional customers.

The CMA has licensed 12 investment banks of which nine are bank subsidiaries.

Other than KCB Capital, other subsidiaries include Barclays Financial Services, NIC Capital, SBG Securities (CFC Stanbic), CBA Capital (Commercial Bank of Africa), ABC Capital, Equity Investment Bank, Kingdom Securities (Cooperative Bank) and Genghis Capital (Chase Bank), which was granted its licence in January.

Barclays Financial Services and KCB Capital, however, are not trading participants at the NSE.

The move by banks into stockbrokerage has brought stiffer competition for stand-alone brokers and investment banks, given that the well-capitalised banks can leverage on their large customer bases to offer complete packages of financial services under one roof.

Faida Investment Bank chairman Bob Karina, speaking to Business Daily earlier, said that the main area of competition will be in serving institutional investors and in securing the big deals in privatisations and merger advisory services. Advisory fees range between 0.75 and 2 per cent of the deal.

NIC Capital, the arranger and transaction advisor for the Centum Investments bond offer that raised Sh3.2 billion in September 2012 earned Sh46.4 million in fees which translates to 1.45 per cent of the offer. 

The expected pick up of the economy in the year is expected to see firms raise more capital either through debt or equity, as well as increased merger and acquisition deals which will increase the amount of transaction fees available for licensees.