Mwalimu Sacco summons EGM to approve Sh500m cash call

Mwalimu Sacco-owned Equatorial Commercial Bank (ECB) is looking to raise an extra Sh500 million through a rights issue as it seeks to shore up its deteriorating capital adequacy ratios.

According to a shareholders’ notice seen by the Business Daily, the bank wants to increase its authorised capital to Sh3.825 billion from the current Sh3.325 billion.

The bank will sell 100 million shares at Sh5 each to its existing shareholders. The sacco is the majority shareholder — with 51 per cent stake — after buying out billionaire businessman Naushad Merali last year.

Mwalimu National Holdings, the Sacco’s vehicle used to acquire the bank, has simultaneously launched a fundraising drive through selling 40 per cent of its stake to the sacco members.

“An extraordinary general meeting of Equatorial Commercial Bank limited will be held on December 9, 2015 …to consider and if thought fit pass …that the authorised share capital of the bank be increased from Sh3,325,000,000 to Sh3,825,000,000 by the creation of an additional 100,000,000 ordinary shares of Sh5 each,” said the notice.

The banks had thin capital margins in the third quarter. Relative to the 14.5 per cent statutory minimum ratio in terms of total capital-to-total risk-weighted assets — which shows the ability to increase lending — the bank’s ratio stands at 15.21 per cent giving a headroom of only 0.71 per cent. This means it can hardly increase lending beyond the current level of Sh8.46 billion.

READ: Mwalimu Sacco gets green light to buy Merali bank

Mwalimu Sacco hopes to ride on its large membership to raise cash. The sacco is billed as the largest in Kenya with more than 60,000 members and Sh18 billion in savings.

It is expected some of the funds raised from the sacco members will go into expanding the business of the Sh2 billion capital bank and also be used to buy an extra 24 per cent stake from some of the bank’s current shareholders.

The extra 24 per cent stake is worth Sh1 billion while the 51 per cent bought earlier cost Sh1.6 billion.

Initially, Mwalimu bought a 51-per cent stake which was approved by regulators early this year.

The Co-operative Alliance of Kenya attempted to stop the transaction, causing a commission to be set up to investigate the matter.

Eventually the commission — appointed by the Ministry of Industrialisation and Enterprise — gave a nod to the sale.

The alliance had pointed out that the sacco had ignored concerns raised by auditors Ernst & Young to the effect that the bank had not kept a proper classification of loans.