The Treasury has agreed to convert into shares the Sh1.6 billion it lent to struggling Consolidated Bank and which was used to repay bondholders.
The conversion will be through the creation of new 80 million ordinary shares valued at Sh20 each in a transaction that is expected to be completed next month.
The lender has informed its shareholders that Treasury is okay with the deal that now deepens its grip on the bank and casts doubt on the viability of the bank’s other delayed plan of getting a strategic investor.
“The National Treasury has agreed to have the bond redemption amount capitalised and ordinary shares in the capital of the bank equivalent to the bond redemption amount issued to it,” Consolidated Bank said in a notice.
“The reason for the capitalisation is to aid the bank move towards meeting its minimum regulatory capital requirements.”
The lender last reported a negative core capital of 351.1 million, meaning it requires at least Sh1.35 billion to be in compliant with the minimum Sh1 billion required by Central Bank of Kenya (CBK).
The bank has called for an extraordinary general meeting on January 30 in which investors are expected to endorse the deal. Treasury owns an 85.8 percent stake in Consolidated Bank, giving it important say on the outcome.
The deal will more than double Consolidated’s ordinary stock given that it has some 69.92 million of outstanding shares.
Treasury’s deal of Sh20 per share is a major premium to the bank’s net asset value per share of Sh6.6 as of September 2019.
Consolidated had issued a Sh2 billion medium term notes, Sh1.75 billion senior notes and Sh250 million subordinate notes in July 2012 with maturity date of July 22, 2019.