StanChart CEO Richard Etemesi: He said last year the lender would either take a concessionary loan from its parent or float a right issue or use both to boost its capital base. Photo/File
Standard Chartered Bank has received a Sh1.7 billion ($20 million) loan from its London-based holding company to boost its capital base ahead of a rights issue expected later this year.
The loan, which is reported in StanChart Kenya’s annual statement for 2011, is classified as a long-term debt repayable in 10 years
StanChart Kenya CEO Richard Etemesi had disclosed in an interview with the Business Daily last year that the lender would either take a concessionary loan from its parent company or float a rights issue or do both to boost its capital base.
Profit retention
“The subordinated debt is an unsecured 10 year loan capital issued by Standard Chartered PLC to enhance the Bank’s capital base.
The subordinated debt is unguaranteed and subordinated to the claims of other creditors including without limitation, customer deposits and deposits by banks,” says the company in its annual report.
The cash will enable StanChart to grow its customer base and loan book without breaching the statutory capital ratio requirements.
The loan is pegged on the London Interbank Offered Rate (LIBOR).
Last year, StanChart Kenya paid an effective rate of 2.65 per cent to its holding company, underlining the advantage enjoyed by subsidiaries of international companies that can raise cheap capital through their parent firms.
StanChart’s capital adequacy ratios were running thin and the management had stated that it would use a combination of profit retention, debt and rights issue to boost its capital base.
“It will be a combination of profit retentions, rights issues and or/subordinated debt,” Mr Etemesi told Business Daily late last year.
Consequently the bank will be seeking shareholders approval for a second rights issue in as many years during its annual general meeting on May 24.
Analysts said the combination of capital raising measures was an indication of the management’s optimism in the operating environment.
“It is more of the management telling us indirectly that they see opportunities and the only way to tap into them is to have sufficient capital,” said Francis Mwangi, a research analyst with Standard Investment Bank.
He, however, said any regional expansion plans would be driven by the parent company to avoid straining the Kenyan subsidiary in attempts to support growth in the other markets.
“The holding company had earlier said that it was targeting expansion of all its operations which would include African business.
“So regional expansion would most probably be driven by the PLC with Kenya serving as a regional head with the banks feeding the PLC,” said Mr Mwangi.
Custody services
In 2010 the bank raised Sh2.5 billion through a rights issue to finance the purchase of the custody services business from Barclays Bank of Kenya.
The bank also retained 44 per cent of its earnings in 2011 compared to 26 per cent in 2010, saying that this was attributable to need to sustain its asset growth. “To maintain this momentum and to take advantage of the demand for loans and advances, the Board has found it necessary to reduce the dividend payout.
“Thus, the 2011 dividend payout gives us the right balance between bolstering our capital base to enable us pursue growth as well as to continue to deliver attractive returns to our investors,” said the banks chairman Mr Wilfred Kiboro.
Fund expansion
Other banks that have also announced plans to raise additional capital with regional expansion being the key motivation for most of them include CFC Stanbic, NIC and DTB Bank which have received shareholder approval for rights issue.
NIC Bank aims to raise Sh2 billion to fund its expansion to Uganda while CFC is eyeing South Sudan.
