NSE suspends Chase Bank’s Sh10bn bond trading

From Left: Nairobi Securities Exchange vice-chairman Bob Karina, then Chase Bank chairman Zafrullah Khan and then Chase Group managing director Duncan Kabui during the bell ringing for the bank’s bond in June 2015. PHOTO | FILE 

By GEOFFREY IRUNGU, girungu@ke.nationmedia.com

In Summary

• The NSE suspended the trading of the bond following a directive from the Capital Markets Authority.
• Chase Bank collapsed on April 7 following failure to pay customer deposits after it ran out of cash.
• The bank suffered massive withdrawals as it was hit by a crisis of confidence resulting from a restatement of the bank’s financial statement to reveal massive nonperforming loans.

The Sh10 billion corporate bond issued by the collapsed Chase Bank has been suspended from trading on the Nairobi Securities Exchange (NSE) effective last Monday.

The NSE suspended the trading of the bond following a directive from the regulator, Capital Markets Authority (CMA).

This is the second bank bond to run into trouble after Imperial Bank collapsed in October just before it could list its Sh2 billion bond issued to investors.

“Notice is hereby given on the suspension of trading of the Chase Bank Fixed Rate Notes listed on the Fixed Income Securities Market Segment of the NSE, in line with directives received from the Capital Market’s Authority, effective April 8, 2016,” said the NSE in a statement released Tuesday.

Chase Bank collapsed on April 7 following failure to pay customer deposits after it ran out of cash.

The bank suffered massive withdrawals, some of it done online, as it was hit by a crisis of confidence resulting from a restatement of the bank’s financial statement to reveal massive nonperforming loans.

On the day the restated results were published, the managing director and the chairman were replaced, triggering further uncertainty.

“This (suspension) follows the placement of Chase Bank (Kenya) limited under receivership by Central Bank of Kenya (CBK) with effect from April 7, 2016, thereby prohibiting payment of any claims by the bank’s creditors,” said NSE. “The shareholders, investors and general public are asked to take note of the suspension.”

READ: How Chase Bank director lent himself Sh7.9 billion

The CMA approved the issuance of the bond in June last year. However, the company only managed to raise Sh4.8 billion in the first tranche which got listed on the NSE in June.

The coupon rate of 13.25 per cent is the second highest of the outstanding bonds on the NSE fixed-income board. The only other higher coupon was that of Real People — which was bought by Britam — at 13.65 per cent in 2013.

But unlike the Chase Bank bond, which came in June, the Real bond came in August when a liquidity crunch in the market had begun to manifest itself in higher interbank rates (reaching over 20 per cent) — indicating that the bond needed to have a higher coupon rate to attract investors.

This means that at the time it was issued, the Chase Bank bond had the highest coupon in the market.

The offer of the high coupon fits in with the narrative that the bank was facing some pressures late last year.

Despite raising the cash, the bank was experiencing constraints only a few months later. Central Bank of Kenya governor Patrick Njoroge said on the day the bank was placed in receivership that it had begun experiencing pressure as early as last October.