Family Bank launches Sh1.2bn rights issue to boost growth plan

A banking hall at a Family Bank branch. The bank will on Wednesday morning launch a Sh1.2 billion cash call to its shareholders to finance expansion plans and strengthen its balance sheet.  Nation Media Group

By MOSES MICHIRA

In Summary

• The current rights issue is the bank’s second cash call after a previous one in 2009 which saw shareholders pump in Sh1.5 billion, which was later followed by an injection of Sh1 billion via a private share placement in September 2011.
• Tunis-based Africinvest, Netherlands’ FMO, and Norway’s Norfund made a joint equity investment of Sh1 billion in the bank that gave them a 22.4 per cent stake. The capital injection from the strategic investors and the rights issue helped the bank to grow its loan book to Sh16.3 billion as at the end of 2011, a 59 per cent increase from Sh10.3 billion in 2010.

Family Bank will on Wednesday morning launch a Sh1.2 billion cash call to its shareholders to finance expansion plans and strengthen its balance sheet.

Cash raised from the rights issue will be invested in product diversification, branch expansion, deploying an Internet banking platform, Visa Card switching platform and a foray into agency banking model, among other plans.

The bank has in the recent past poached top fixed income dealers from rival lenders to revamp its treasury department, which forms a significant revenue stream for the big five commercial banks.

“The bank intends to finance deployment of an Internet banking platform, Visa Card switching platform, further branch expansion and agency banking channel rollouts,” says the chairman’s statement in the information memorandum for the rights issue.

It has created 40,348,740 new shares for sale to shareholders as rights, equivalent to about one share for every six held.

A bigger balance sheet resulting from the fresh capital injection will also enable the bank to accept more customer deposits and capacity to lend. Family Bank was in the news last week following the exit of its founder Titus Muya, who was succeeded by Wilfred Kiboro as chairman.

The current rights issue is the bank’s second cash call after a previous one in 2009 which saw shareholders pump in Sh1.5 billion, which was later followed by an injection of Sh1 billion via a private share placement in September 2011.

Tunis-based Africinvest, Netherlands’ FMO, and Norway’s Norfund made a joint equity investment of Sh1 billion in the bank that gave them a 22.4 per cent stake. The capital injection from the strategic investors and the rights issue helped the bank to grow its loan book to Sh16.3 billion as at the end of 2011, a 59 per cent increase from Sh10.3 billion in 2010.

Peter Munyiri, the bank’s managing director, had told the Business Daily that yet another strategic investor was expected to take up a stake in the bank, which has set a target to raise its shareholder’s funds to Sh10 billion before a planned listing on the Nairobi Securities Exchange (NSE).

Details contained in the lender’s information memorandum on the ongoing rights issue shows that as at the end of last year Family Bank had Sh3.3 billion in shareholder funds.

Mr Munyiri had said that the rights issue had been pushed back to allow time for the bank to conclude the proposed share sale to the strategic investor. Initially the rights issue was supposed to end on September 12.

The sale price is yet to be made public but investment bankers have projected that each share could be priced at a discounted rate of about Sh30, an estimate that is supported by the mathematical computation of the targeted amount and shares on sale.

Such offers are ordinarily discounted to attract participation.

Family Bank has 243 million issued and fully paid up shares and should the rights issue be successful, this will increase to 283 million.

Recent capital raising programmes among banking institutions like DTB, CFC Stanbic and Standard Chartered Bank (Kenya) have received investor support that exceeds targeted amounts.