NIC Bank takes Sh5bn in oversubscribed bond issue

What you need to know:

The bank was offered Sh6.5 billion and has absorbed Sh5 billion of that after exercising a green-shoe option.
The result underlines investors’ appetite for double digit returns ahead of an expected drop in interest rates.

NIC Bank’s Sh3 billion bond issue has been oversubscribed, underlining investors’ appetite for double digit returns ahead of an expected drop in interest rates.

The bank said it was offered Sh6.5 billion and has absorbed Sh5 billion of that after exercising a Sh2 billion green-shoe option. This is a legal mechanism built into the offer allowing the issuer to absorb extra funds.

The five-year bond offered a fixed rate of return of 12.5 per cent.

Interest rates have been on a downward trend as the Government keeps a lid on its uptake of domestic debt. The indicative 91-day Treasury bill rate has dropped from 11.2 per cent at end of June to 8.2 per cent.

“In the process of gauging investor interest, it became apparent there was greater demand in the bond issue than the original Sh3 billion we were seeking,” said NIC Bank group managing director John Gachora. Institutional investors offered to take up 90 per cent of the issue.

The Sh3 billion bond issue was planned as the first tranche of a Sh8 billion bond offer approved by the Capital Market's Authority in August.

READ: NIC stock touches four-year high even as cash call looms.

NIC plans to use the cash to strengthen its capital base and grow lending to the retail and business segments. The bank is currently operating on thin capital adequacy ratios with its total capital to total risk weighted assets ratio being only 0.52 percentage points above the statutory minimum.

Subject to CMA approval, the lender plans to raise an additional Sh2 billion from its shareholders through a rights issue before end of the year, which will boost its core capital. Its core capital is also thin compared to its loan book. NIC Bank Group Chairman James Ndegwa told shareholders at a recent EGM that the bank had decided to go for a combination of debt and equity to finance business growth.

Recent corporate bond issues by Britam Investment and UAP Insurance holdings were also oversubscribed. DTB’s rights issue and the Nairobi Securities Exchange’s initial public share offering were also oversubscribed. The trends reflect high liquidity levels in the market and show that investors are hungry for better returns and attractive places to park their money.