Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Stockbrokers eye earnings boost from rights issues
A customer at Dyer and Blair Investment Bank offices in Nairobi. The firm is among those that have handled major transaction advisory services in recent years. File
Investment banks are set to get an income boost from rights issue offers expected in the market next year.
Kenya Airways, CFC Stanbic Bank and Family Bank have all announced cash call plans in recent weeks, signalling a watershed for stockbrokers whose commission incomes have suffered a squeeze from low market activity since late last year.
Hospitality firm TPS East Africa is also said to be planning a rights issue next year.
The companies are turning to the capital markets for funds to escape high lending rates owing to the tight monetary policy stance adopted by the Central Bank in a bid to rein in inflation and strengthen the shilling.
“It will boost our revenues especially during this time when the equity market is slow,” said James Wangunyu, chairman of Standard Investment Bank which will be the leading stockbroker in the national airline’s rights issue expected in the first quarter of next year.
Only a few investment banks have the capacity to offer transaction advisory services, a situation that is likely to further widen the revenue gap between intermediaries that rely solely on brokerage commissions and those that have additional revenue streams.
Standard Investment Bank, CFC Stanbic, Dyer and Blair, Renaissance Capital, Faida, NIC Capital and African Alliance have handled majority of transaction advisory services in recent years.
CFC Stanbic Financial Services is the appointed sponsoring broker for the CFC Stanbic Holding rights issue that will be up for shareholders’ approval in an extra-ordinary general meeting scheduled for December 19.
High inflation has pushed the Nairobi Securities Exchange into a bearish run from late last year. The diminished transaction volumes are set to hurt brokerage commissions earned by the market intermediaries.
High returns on government securities has also pulled investors’ capital away from the bourse in favour of the risk free investments.
“If interest rates remains high we are likely to see a preference for more equity issues” said Nkoregamba Mwebesa, CEO of CfC Stanbic Financial Services.
He added that companies’ need to raise capital over-rides transitory macro-economic conditions, such as the current surge in interest rates that is expected to ease next year.
“Anybody who wants to expand will do a rights issue or get a long-term loan from shareholders at a concessionary rate as its difficult to raise cash because of high expectations by investors,” said Jimnah Mbaru, the chairman of Dyer and Blair Investment Bank.
Some companies that are also seen as rights issue candidates include Co-operative Bank, Standard Chartered Bank and NIC Bank. Co-operative Bank has pointed out that it could delay its cash call to early 2013 fearing possible market volatility in an election year.
Market insiders said that 2012 could however be a good year for capital raising as it is likely to prepare companies to benefit from economic optimism that follows successful polls.
“Though the current macro-economic conditions could persist next year it would still be a good time to approach the market so that you benefit immediately the economy takes off,” said Mr Wangunyu.
Family Bank will be executing a cash call next year, but being a non-quoted company it may handle the transaction internally without engaging a stockbroker.
This year there has been no rights issue among listed companies.
Jamii Bora Bank, a non-listed institution, is among the private firms that have held cash calls.
Last year TPS East Africa, Standard Chartered Bank, KCB and Kenya Power (then KPLC) conducted rights issues that saw lead stock brokers receive more than Sh12 million while transaction advisors were paid over Sh61 million.
