NIC targets Sh5bn from cash call and corporate bond

Money Markets

NIC Bank Group managing director John Gachora at a past function. The bank is preparing to raise Sh5 billion from September as it races to meet regulatory capital requirements and fund its business expansion. FILE PHOTO 

By John Gachiri

In Summary

• NIC Bank says it is preparing to raise Sh5 billion from next month as it races to meet regulatory capital requirements and fund its business expansion.
• Analysts estimate the banking industry needs to raise over Sh70 billion to maintain the growth tempo while remaining within statutory limits.
• Analysts also say banks have to substantially increase their capital bases if they are to leverage on the rapid economic growth expected in the East African region.

NIC Bank says it is preparing to raise Sh5 billion from next month as it races to meet regulatory capital requirements and fund its business expansion.

 

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The bank said it expects to raise Sh2 billion through a rights issue tentatively scheduled for mid-September and another Sh3 billion through a corporate bond.

Shareholders agreed to the cash call at the bank’s extraordinary general meeting (EGM) held Wednesday. “We feel that Sh2 billion through a rights issue and Sh3 billion through a corporate bond is the right mix,” said NIC group chairman James Ndegwa at the EGM.

Subsidiaries of the listed bank, NIC Capital and NIC Securities, will be the transaction advisers for the two issues.

As at the end of June, the bank’s total capital stood at 12.52 per cent of its total risk weighted assets which is just 0.52 per cent above the Central Bank of Kenya’s (CBK) 12 per cent minimum.

The CBK has issued fresh guidelines seeking all banks to raise this ratio to 14.5 per cent by the end of this year. This has triggered off a race for funding from shareholders and bond creditors.

Analysts estimate the industry needs to raise over Sh70 billion to maintain the growth tempo while remaining within statutory limits.

READ: Banks set for new capital drive after bountiful year

The last rights issue by NIC was in October 2012 and was oversubscribed by 238 per cent. NIC Bank, associated with the wealthy Ndegwa family, received applications worth Sh7 billion against the Sh2 billion it had targeted to raise.

The CBK has gradually been raising the ratio which is meant to reinforce the banking industry’s stability.

Mr Ndegwa said the bank has already applied to the Capital Markets Authority, the industry regulator, to approve its bond plan which is meant to raise Sh8 billion, though the first tranche will only raise Sh3 billion.

“We are seeking to raise Sh8 billion but not all of it now,” he said.

READ: NIC opts for rights issue, bond in search of expansion capital

The bank said it would focus on its core market of small and mid-size business and other corporate clients.

“We will continue to focus more on retail and business banking. Although we anticipate intensified competition in that space, innovation will form the bedrock of our strategy,” the NIC group chief executive John Gachora had said when the bank released its half year results.