HF Group’s rights issue was oversubscribed by 38 percent, with shareholders offering the company Sh6.4 billion in the cash call whose proceeds will be used to buffer its capital levels ahead of new rules requiring banks to raise their core capital.
The lender had offered 1.153 billion shares in the issue seeking Sh4.6 billion, but received applications for 1.596 billion units. HF also retained a green shoe option for 346.15 million shares, which would raise the target amount to Sh5.99 billion.
A green shoe option allows a company to take up additional shares from a rights issue to meet high investor demand.
The issue was priced at Sh4 per share, meaning those who applied offered the lender Sh6.38 billion. Having opted to exercise the green shoe option due to the oversubscription, the company will now refund applicants Sh384 million in excess offers.
Ahead of the offer, the group said it was seeking additional capital to increase investments in expanded business segments and shore up its capital base.
“These funds will go towards expanding the growth of our business…where 85 percent (Sh5 billion) will go towards this while 15 percent will go towards technology and digitisation of the business to increase efficiency and customer experience,” said HF Group chief executive officer Robert Kibaara.
“With this successful capital injection, the group is on course to fully comply with the new capital regulations that will see banks expected to grow their capital base to Sh10 billion by 2028.”
HF last ran a rights issue in 2015, issuing 116.67 million shares priced at Sh30 each, at a rate of one for every two held. The offer raised Sh3.5 billion from investor bids worth Sh9 billion. The funds were earmarked for branch expansion and expansion of mortgage lending capacity.
The lender had indicated in its 2023 annual report that it intended to shore up its core capital in the course of 2024 to support the growth of its business.
The bank’s latest financials, covering the nine months to September 2024, show that it had a core capital or tier-one capital of Sh2.25 billion, and total capital (tier-one plus supplementary or tier-two capital) of Sh3.76 billion.
The recently signed Business Laws (Amendment) Act 2024 requires banks to boost their core capital to Sh3 billion by the end of 2025, and then to Sh5 billion by 2026, Sh7 billion by 2027, Sh8 billion by 2028 and finally Sh10 billion by 2029.
Banks normally raise tier-one capital from existing shareholders but can also do so through equity sales, either through private placement or initial public offering.
As per the Banking Act, core capital represents permanent shareholders’ equity in the form of issued and fully paid-up shares, plus all disclosed reserves, less goodwill or any other intangible assets. Tier two capital (supplementary capital) consists mainly of revaluation reserves, subordinated debt and statutory loan reserves.
