[2008-06-18]  KCB set for rights issue
When the Kenya Commercial Bank (KCB) tabled proposals for a KSH5 billion rights issue earlier this year, questions were raised over the issue’s success given that it was likely to compete for funds with the massive Safaricom initial public offering.

But with the Safaricom IPO completed and the market ready for billions in IPO refunds, KCB might well be on its way to pulling off its fund raiser, but not just yet.

The success of KCB’s rights issue that opens next week hinges on whether the majority shareholder - the Kenya government - takes up its rights in the country’s second largest indigenous bank. “Failure to take up their rights will send negative signals to the public,” says Resa Imbuye, an investment analyst at Old Mutual Asset Managers.

While the government has indicated that it has no intentions of selling a stake in KCB, its response to questions regarding the rights issue has been non-committal.

Any forfeiture of its rights would lead to a dilution its 26 percent stake to about 21.67 per cent. While the government is forging ahead with massive divestment in state owned corporations, whether it is willing to reduce its stake in profitable institutions such as KCB in a hard year ahead remains to be seen.

Still, analysts say that the government is expected to cling to its entitlement to a board member while ensuring it rakes in a handsome dividend from KCB.

Expenditure estimates released last week by Finance Minister Amos Kimunya provided KSH300 million to the department of government investments for equity participation in domestic public financial institutions.

While this implies a resolve to take up the KCB rights, its proportion of 57.6 million shares would need KSH1.4 billion to take up at an issue of KSH25 per share. Under the same vote there is KSH6.3 billion that is earmarked for investment in non financial institutions.

For the 2007 financial year, Treasury pocketed KSH366 million from KCB.

With the rights issue, existing shareholders have the privilege to buy a specified number of new shares from the firm at a special price within a given time period.

Initially market players had questioned the timing of the rights issue, citing the competition of funds between it and the Safaricom IPO.

The bank is currently sending out the information memorandum and provisional allotment letters to shareholders with directions on how to exercise their rights. The exercise is expected to raise KSH5 billion for the bank.

Despite the bank’s stable liquidity position, rapid expansion and high costs of deposits have forced the shore up its capital base so as to enable it to support its burgeoning balance sheet.

KCB, which is Kenya’s second biggest bank by asset size, faces a major challenge posed by Barclays bank’s decision to expand its retail franchise in a move that will double its branches. Also of concern to the bank is Equity’s huge capitalization that could see it venturing aggressively into wholesale and corporate finance markets.

“We are seeking additional capital from our shareholders to enhance our capacity to collect more deposits, market aggressively for increased loans and expand our infrastructure both locally and regionally,” said Martin Oduor-Otieno, KCB Group’s chief executive.

Equity’s decision to buy Housing Finance and the Barclays’ plan to grow its mortgage lending business is expected to increase pressure on KCB’s Savings & Loans division.

Competitive space
While KCB’s competitive space has grown into a tough neighbourhood, the bank has also been making significant headway into foreign markets such as Tanzania, Uganda and Southern Sudan in addition to aggressive lending locally.

Plans are underway that will see the bank gain a foothold in Rwanda by the end of the year. The share closed yesterday’s trading session at KSH32.70.


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