Treasury withdraws Sh4.9bn set aside for planned National Bank rights issue

Money Markets

National Bank branch in Nyeri town. Delay in the cash call has seen the bank shelve its expansion plans, sell some of its assets in an effort to shore up its capital base. PHOTO | FILE 

By GEORGE NGIGI, gngigi@ke.nationmedia.com

Posted  Thursday, March 17   2016 at  00:00

In Summary

• Treasury reallocated the cash in the supplementary budget tabled in Parliament on Tuesday, casting doubts on the execution of the rights issue which has been in the works for the last three years.
• The NBK had secured shareholders’ approval to raise Sh13 billion in 2013 part of which was to be used in redeeming 1.135 billion preference shares held by the Treasury and the NSSF.
• Delay in the cash call has seen the bank shelve its expansion plans, sell some of its assets in an effort to shore up its capital base.

The Treasury has withdrawn Sh4.9 billion set aside for participation in the planned National Bank rights issue citing delays in the process.

Finance secretary Henry Rotich reallocated the cash in the supplementary budget tabled in Parliament on Tuesday, casting doubts on the execution of the rights issue which has been in the works for the last three years.

“We removed that because it has not taken off and the year is ending,” said Mr Rotich in a telephone interview with the Business Daily.

The NBK management in the past has accused the Capital Markets Authority (CMA) of delaying approving the cash call without any solid reason. 

The CMA has previous attributed its hesitation to a lack of written confirmation from anchor shareholders that they would participate in the rights issue.

The Treasury holds a 22.5 per cent stake in NBK, making it the second largest institutional investor after the government-controlled National Social Security Fund (NSSF), which has 48.1 per cent shareholding.

The Treasury secretary attributed the delay to a lack of clarity on the strategic direction of the bank.

“We are still finding a reform process (formulae) because it has been under the privatisation process and now there are suggestions of dealing with it under the new parastatal reforms — some of those decisions that are now being finalised have delayed the rights issue,” said Mr Rotich.

The government has been mulling over selling its stake in the lender to a strategic investor or through an initial public offering.

Under the parastatal reforms, NBK is to be merged with other government-owned lending institutions, being Consolidated Bank and Development Bank of Kenya.

READ: Kenya suspends sale of three banks ahead of merger plans

The NBK had secured shareholders’ approval to raise Sh13 billion in 2013 part of which was to be used in redeeming 1.135 billion preference shares held by the Treasury and the NSSF.

“We project that we would still achieve the objectives set out in our transformation programme but this will take us a longer without the rights,” said NBK marketing director Bernadette Ngara on Wednesday.

The funds were also to support the banks growth strategy and boost its capital ratios, especially the total capital to total risk-weighted assets that in September was marginally above the minimum requirement by 0.9 percentage points at 15.4 per cent.

Delay in the cash call has seen the bank shelve its expansion plans, sell some of its assets in an effort to shore up its capital base and lower its dividend payout policy.