StanChart share holders during an AGM held in Nairobi last week: The shareholders approved the creation of 37 million new shares through an increase in its authorised shares to 300 million ordinary shares. Photo/LIZ MUTHONI
Standard Chartered Bank is set to raise Sh2.5 billion from a rights issue to help finance its acquisition of Barclays Bank custodial and registry business in Kenya.
Purchase of the custodial and registry business in eight African countries should bring StanChart’s Africa operation in line with the bank’s operations in Asia and Middle East where it has similar services.
The deal was done by the parent companies of the two multinationals with the various country entities footing the bill.
Out of the total Sh2.5 billion price, StanChart Kenya is to pay Barclays Bank of Kenya Sh1.88 billion with the balance of Sh620 million going into the banking operations.
Barclays Bank said in a separate statement that the consideration for its custody business was Sh3.5 billion. StanChart Plc is expected to top up the difference.
Custody services involve safe keeping of assets such as funds and deeds on behalf of institutional investors like pension schemes.
By managing the assets the banks make money through commissions and fees.
“One rationale behind the acquisition of the custody business is to give our Asian customers opportunity to invest in African capital markets, of which Kenya is the largest,” the bank’s managing director, Mr Richard Etemesi said.
Kenya is the largest Barclays custody business and StanChart is looking to launch in new markets including Nigeria, South Africa and Egypt through third party custodians monitored from Mauritius.
“Income from the custodial service is estimated at Sh600 million and we intend to grow this to Sh1 billion in the next two years”, said Mr. Etemesi.
Besides Kenya where it dominates with a 70 per cent market share, the Barclays custodial business is found in Botswana, Ghana, Mauritius, Tanzania, Uganda, Zambia and Zimbabwe.
The acquisition of the Barclays custodial and registry services is expected to be completed by the end of October.
The bank has obtained the go ahead from its shareholders to raise Sh2.5 billion from the rights issues and now awaits the nod from the Capital Markets Authority.
The shareholders approved the creation of 37 million new shares through an increase in its authorised shares to 300 million ordinary shares from the current 272 million ordinary shares.
With the face value of the shares at Sh5, the bank authorised share capital will increase to Sh1.55 billion from Sh1.365 billion.
“We will proceed to prepare the rights issue as the authorisation from our shareholders allows us to complete the acquisition of the Barclays Bank custodial and registry services”, said Mr. Etemesi.
With the bank’s share trading at an average of Sh224, the bank is in a position to raise over Sh8 billion at current market prices if it issues all the 37 million new shares.
However, a rights issue is normally offered at a discounted price to allow existing shareholders take up their rights.
It’s also used as a window to allow shareholders buy a discounted price, but have the new shares ranked at market price once the exercise is over.
With the bank planning to raise Sh2.5 billion, indications are that it would only offer a portion of the 37 million shares leaving it with shares for future fund raising plans.
“The pricing and allocation of the rights issue will be determined once we are through the process of approval form the necessary regulators,” said Mr. Etemesi.
The Barclays Bank custodial services is estimated to account for 70 per cent of the custodial business in the country.
In addition, the bank will have a wider pool of deposits which will be a cheaper source compared to the current deposit mobilisation drive.
“The custodial services will allow us to access deposits at a lower cost to income ratio compared to other deposit mobilization exercise,” said Chemutai Murgor, the bank’s finance executive director.
The new business line is seen as a platform that will allow investors especially from Asia and Middle East to leverage their investment decisions in Africa as an emerging market.
During the bank’s annual general meeting, the shareholders approved the payment of the two interim dividends of Sh5 paid out earlier and the final dividend of Sh7 yet to be paid bringing the final dividend payment to Sh12 per ordinary share.
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