State-owned Consolidated Bank, which was formed to absorb financial institutions that collapsed in the late 1980s, will be privatised in one year.
Finance PS Joseph Kinyua said on Monday that the Treasury plans to sell its shares in the bank within the 2012-2013 financial year after the Privatisation Commission completes its work and new commissioners are appointed.
The government could have sold its stake earlier, but delays in appointment of commissioners, following a stand-off between the Treasury and House Finance Committee over vetting, has paralysed the process.
The commission is working to see the bank listed on the Nairobi Securities Exchange (NSE) a year from now. Mr Kinyua says the government is looking at an initial public offering, sale to a strategic investor or a mix of the two.
“The government’s intention is to eventually privatise the bank and ideally give Kenyans an opportunity to own and participate in the affairs of the bank,” he said.
The government directly owns a 50.2 per cent stake though the Deposit Protection Fund (DPF) and 49.8 per cent through a number of parastatals.
A controversial government-engineered bailout saw the merger of the financial institutions, compensation to individuals and private firms through the Deposit Protection Fund while parastatals were supposed to recover their deposits in form of shares in the new bank.
The institutions were Jimba Credit Corporation, Union Bank of Kenya, Kenya Savings and Mortgages Ltd, Estate Finance Company of Kenya Ltd, Estate Building Society, Business Finance Company Ltd, Citizen Building Society, Nationwide Finance Company Ltd, Home Savings and Mortgages.
Strategic importance
Mr Kinyua said that the government is already a shareholder in other banks and it was of no strategic importance to also have Consolidated Bank in its portfolio.
Notably, the government owns minority shares in National Bank and KCB, which are listed on the NSE.
The government will still have interest in the bank even if the plan to offload all its shares is successful as it has committed to buying Sh500 million worth of notes in the ongoing Sh4 billion medium-term note offer.
The bank is seeking the money in two Sh2 billion tranches. The date for the second one is yet to be decided.
The Consolidated Bank board wanted Sh1 billion commitment from the Treasury, but multiplicity of financial needs competing for limited government resources has seen the government give an assurance of half the amount.
The first Sh2 billion medium-term note was split between a senior debt of Sh1.75 billion and a Sh250 million subordinated debt. The senior debt would have a seven-year maturity while the subordinated debt will be repayable in five installments.
Investors who opt for the senior debt will have the choice between a 13.25 per cent fixed rate and a floating rate to be priced at 2 per cent above the 182-day Treasury bill.
Seeking funds
According to the prospectus, the floating rate note will have a 13.75 per cent rate cap and a minimum 10 per cent rate.
Consolidated Bank is seeking funds to enable it expand and boost its tier II capital. NIC Capital said Sh250 million of the Sh2 billion medium-term notes that went on sale yesterday will be used to shore up the capital.
The banks information memorandum for the Sh4 billion medium-term note says that by 2014 the bank plans to have Sh18 billion loan book, nearly twice the Sh9.2 billion it had by the end of 2011. The Sh250 million capital injection will top up its Sh1.1 billion capital base.
