[2008-07-07]  KCB Rights Issue Dogged By Drop in the NSE Share Index
The jury is still out on whether the delay in processing the Safaricom refunds will affect the Kenya Commercial Bank Rights Issue which closes this Friday, July 11.
The issue is expected to raise Ksh5.5 billion ($88 million) through the sale of 222 million shares at a discounted price of Ksh25 (3 US cents). By the end of last week, KCB shares were trading at about Ksh31.
KCB, with a network of over 100 outlets - making it the biggest bank in Kenya - wants to use the receipts from the issue to drive an ambitious regional expansion programme, in which it hopes to open more branches in Uganda, Southern Sudan, Rwanda and Burundi. The bank is also mulling over plans to go continental starting 2010.
Analysts say that the delay in Safaricom refunds, to the tune of Ksh30 billion ($476 million) at the end of June by some estimates, has started affecting trading on the Nairobi Stock Exchange. The bourse's 20-Share index has been falling gradually over the past few weeks, with prices on most counters registering negative numbers.
KCB's solid fundamentals are however expected to attract considerable interest from investors, probably wiping out the negative impact of the Safaricom refund delays.
The bank is only one of five Kenyan companies to report over Ksh1 billion ($15 million) in profits in the first quarter of this year, with total asset base growing by 29.73 per cent to stand at Ksh122 billion ($1.9 billion) compared with Ksh94 billion (1.5 billion) in the same period last year.
Total shareholder funds also grew by 15 per cent to stand at Ksh13.9 billion ($220 million) during the first quarter, while net non-performing loans came down by 43.7 per cent to stand at Ksh1.4 billion ($22 million) as compared to last year's Ksh2.8 billion ($44 million). Profit after tax increased by 52.52 per cent to stand at Ksh1.03 billion ($16 million) compared with Ksh680 million ($10.7 million) last year.
"The rights issue price is still favourable to the investor given that the bank has a grand plan of cross-listing in East Africa, venturing into the mortgage market and strengthening its regional and local branch network," said Polycarp Ngoje of Tsavo Securities. "We recommend that investors pick up their rights in full or sell them in the market."
According to Tsavo, investors who need more shares than their rights entitle them, will probably be able to buy in the secondary market given that the government will not take up its rights. The government's forfeiture of its rights, which require $23 million to take up, will see its shareholding dip from 26.23 per cent to 23.6 per cent.
Institutional and retail investors already hold 21.8 per cent and 52 per cent respectively. According to Finance minister Amos Kimunya, the reason why the government will not take up its rights is budgetary pressure, which includes an unprecedented Ksh127 billion ($2.1 billion) deficit.
"It was a difficult decision to take," said Mr Kimunya last week at an investors' briefing. "However, we currently have many pressing demands on the budget," he added.
Significantly, to avoid a Safaricom-like refund fiasco, KCB's transactional advisors, Standard Investment Bank and Faida Investment Bank, have adopted a pay-after-allocation model, in which existing shareholders who apply for additional shares beyond what they are entitled to will only pay after the allotment of the shares. The shareholders will however need to obtain a bank guarantee before they can apply.
"To ease on the problem of refunds, investors will only pay for additional shares after they have been allocated," said Bob Karina, the managing director of Faida Investment Bank.
Significantly, the KCB Rights Issue will open just two days after the closure of another by housing mortgage firm Housing Finance, whose offer closed last Friday.
The issue was meant to raise Ksh2.3 billion ($36.5 million) to enable the firm mount an aggressive housing programme.
The government similarly sat out the issue, effectively reducing its share-holding in the mortgage firm from 7.3 per cent to 3.8 per cent.Preiminary indications are that the issue was successful.


Source: ALLAFRICA