Consolidated Bank of Kenya on Thursday got a lifeline after Treasury announced it will bail out the lender to help repay holders of its Sh1.6 billion corporate bond due last month.
Acting Treasury Secretary Ukur Yatani (right) said it will, however, do so in line with Consolidated Bank’s plan to extend the repayment period by a further three months.
“The Government of Kenya as the principal shareholder in Consolidated Bank of Kenya will provide the necessary support to ensure that the medium-term note issued by the bank is paid,” said Mr Yatani in a statement.
“We are aware and support the request by Consolidated Bank for an extension of three months to pay the note holders.”
The troubled State bank had earlier offered to pay investors three months after the July 22 maturity date hoping for a cash injection from the Treasury. Consolidated Bank is 85.8 percent owned by the State.
“The proposal for extension of the maturity date has been made in consultation with, and in full support of the National Treasury, the majority shareholder. The extension is necessary to allow National Treasury to finalise the process of capital injection into the bank,” the lender had said.
The missed payment would be seen to underline the continued fragility of the corporate bond market that has seen investors suffer losses of more than Sh13 billion from several issuers of the debt instruments in the past few years.
The Nairobi Securities Exchange (NSE)-listed Kenya Re, which bought Consolidated Bank bonds worth Sh100 million, is among the highly exposed institutions. Another firm, Centurion Holdings, invested Sh154.7 million in the corporate paper.
Ownership of the bonds could have changed since the securities are listed on the NSE where they were tradeable.
Consolidated Bank in July 2012 issued a series of the debt securities –senior notes paying fixed interest rate of 13.5 percent and subordinated notes yielding 13.25 percent.
If it had defaulted, Consolidated Bank would have joined a list of corporate bond issuers that have defaulted or restructured their debt, roiling a market segment that has continued to shrink on the back of investors’ loss of confidence.