Uncertainty clouds Kenyan bank’s bond

Consolidated Bank is on the market following years of poor performance and rising debt. PHOTO | FILE | NATION MEDIA GROUP 

In Summary

• The bank last week announced that it had applied for a Ksh1.6 billion ($16 million) bailout to help repay Ksh1.7 billion ($17 million) to its creditors.
• It was on the strength of this plan that it successfully applied for an extension of the repayment period of the debt, which matured on July 22, for three months.
• But the funds the state-owned lender is seeking have not been factored in the budget for the 2019/2020 fiscal year.

By JAMES ANYANZWA
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A cloud of uncertainty hangs over holders of a corporate bond issued by Kenya’s troubled Consolidated Bank seven years ago, as it emerged that a bailout plan on which the lender has placed all its hopes has not been endorsed by Treasury.

BAILOUT PLAN

The bank last week announced that it had applied for a Ksh1.6 billion ($16 million) bailout to help repay Ksh1.7 billion ($17 million) to its creditors. It was on the strength of this plan that it successfully applied for an extension of the repayment period of the debt, which matured on July 22, for three months.

"The last and final payment of the outstanding principal payment (together with interest for the extended period) would be made on October 22,” the bank said.

“The proposal for extension of the maturity date has been made in consultation with, and in full support of the National Treasury, the majority shareholder. The extension is necessary to allow National Treasury to finalise the process of capital injection into the bank.”

But the funds the state-owned lender is seeking have not been factored in the budget for the 2019/2020 fiscal year. This means that the National Treasury would have to seek the support of parliament to include them in the supplementary budget.

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The lender, which is 85.8 per cent owned by the state, and which is on the market for a strategic investor, has therefore entered into a deal with its creditors to extend the repayment period to allow the National Treasury inject capital.

But Treasury says it has not received any bailout proposal.

“We have not received any request for bailout from Consolidated Bank. As far as I am concerned we have not seen it,” a senior government official who is privy to the matter told The EastAfrican.

While this does not necessarily spell doom for the bondholders, it may cause more anxiety.

STAKE

Attempts to seek comments from the bank proved futile as chief executive Thomas Kiyai did not respond to calls and text messages sent to his mobile phone.

Consolidated Bank is one of three state-owned lenders that are on the market following years of poor performance and rising debt. Others are National Bank of Kenya (NBK) and Development Bank of Kenya.

NBK is at advanced stages of acquisition by the country’s biggest bank — KCB Group. KCB received regulatory approval from the Capital Markets Authority and shareholders approved the deal to swap of 10 ordinary shares of NBK for every ordinary share of KCB at their respective annual general meetings. The government through the National Treasury, owns a 22.5 per cent shareholding in NBK while the National Social Security Fund holds 48.06 a per cent.

The government had initially planned to merge the three banks but South African consulting firm Genetics Analytics advised against it.

In May, Consolidated Bank’s bid to raise Ksh3.5 billion ($35 million) through a rights issue and transfer the government’s majority shareholding to a strategic investor collapsed. The bank created an additional 175 million preference shares valued at Ksh3.5 billion ($35 million) to be allocated to the strategic investors.

The potential investors from the US and UAE, pulled out, reportedly when they learnt that a bloc of counties were interested in the stake. The counties forming the Lake Region Economic Bloc are Bomet, Bungoma, Busia, Homa Bay, Kakamega, Kericho, Kisii, Kisumu, Migori, Nandi, Nyamira, Siaya, Trans Nzoia and Vihiga.

PROPOSED MERGER

In December 2014, the government had injected Ksh500 million ($5 million) into Consolidated Bank in return for a 28 per cent shareholding and the Cabinet proposed its merger with NBK and Development Bank. But in 2016, Genetics Analytics recommended that the government make an exit.

Consolidated is expected to cede a majority stake to a strategic investor through a rights issue. The strategic investor is expected to acquire the preference shares and eventually own a controlling stake in the bank by converting them into ordinary shares. The Privatisation Commission (PC) appointed a consortium led by PKF Consulting Ltd to help the bank with its internal restructuring.

An earlier attempt by the lender to raise cash an estimated at Ksh1.8 billion ($18 million) from the shareholders had also collapsed after the National Treasury withdrew its commitment to support the cash call.

In 2012, the bank issued a seven-year fixed-rate bond with an annual coupon rate of 13.25 per cent per annum. Kenya Reinsurance Corporation (Kenya Re) and Centurion Holdings are reportedly among a host of investors who bought the corporate bond.

Consolidated Bank was incorporated in December 1989, in a takeover of weak banks and non-bank financial institutions and build public confidence by taking over nine insolvent institutions.

These were the Estate Finance Company of Kenya, Estate Building Society of Kenya, Nationwide Finance Company Ltd, Home Savings and Mortgages Ltd, Business Finance Company, Jimba Credit Corporation, Kenya Savings and Mortgages Ltd, Union Bank of Kenya Ltd and Citizen Building Society.