Co op bank scales down IPO target

October 23, 2008
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, NAIROBI, October 23 – The volatility in the equity market has forced Co-operative Bank of Kenya to revise the amount of money it plans to raise in the upcoming Initial Public Offer (IPO) from Sh10 billion to Sh6.7 billion.

The bank’s Managing Director Gideon Muriuki told a media briefing Thursday that they had initially projected to float 701 million shares in the IPO at a rate of between Sh13 and Sh15 per share but had to give 20 percent discount on each share to Sh9.50.

“The reasonable thing to do is give a discount to the prevailing market share. If we had done this before the market came down, then the share would have probably been Sh14 or Sh15,” he explained.

The market has declined by over 30 percent since June this year and the situation has been aggravated by panic selling of shares across many counters.

The MD said the offer which opens on October 30 and which allocates 66 percent of the shares to retail investors, has not locked out international participants although there are no special provisions for them in the prospectus.

“The rules of the NSE which the bank will be subjected to are open to all kinds of investors.  In our case, they will apply as part of retail investors and (they) will be treated just like everybody else,” he explained when asked why the allocation policy did not have an international pool.

The offer closes on November 13 and shares are expected to commence trading on the stock market on December 22.

Mr Muriuki said they were looking at a success rate of 30 percent in the transaction which would ideally give them Sh2 billion that they require for their expansion plan.

Many people have questioned the rationale of listing of Co-op bank’s shares when the market is depressed but the management has insisted that the IPO would go on.

Mr Mohammed Hassan the joint Managing Director at Dyer and Blair, which is the  Lead Transaction Adviser said judging from its financial results, Co-op bank was a strong company and would therefore be a good buy for investors.

Mr Hassan encouraged buyers to invest with a medium to long term view in order to benefit from the projected economic growth and that of the equity market.

He said they intend to start apportioning the shares from the first 1,000 and thereafter on a pro rate basis although this is subject to the amount of applications they will receive.

“However should the oversubscription rate be high, then we may approach the Capital Market Authority (CMA) to reduce the allocation levels,” he disclosed.

Plans to list on the Nairobi Stock Exchange (NSE) started in November last year and aim to raise capital for the bank as well as provide a mechanism through which their seven million-plus shareholders can access the bourse. This means that all the 3.6 billion shares will be listed but only the 701million which accounts for 19.3 percent of the total shares are on offer.

Before it could list, Co-op bank had to satisfy the CMA’s requirement on the legal structure that saw the bank restructure from a cooperative society into a public limited liability company.

Co-op bank’s governance structure comprised over 3,805 cooperatives that controlled 77 percent of the bank while the reminder was owned by 52,000 individuals, making it necessary for it to have one principal body (Co-op Holdings Co-operative Society Limited) controlling the majority shares as a block.

Shareholders also approved the transfer business, assets and liabilities from the cooperative society to the company.

The institution, which has a total asset of Sh72billion, making it the fourth largest bank in Kenya, became a fully-fledged commercial bank in 1994. It has two subsidiaries, Co-op Trust Investment Services and Co-operative Consultancy Services which offer fund management services and financial and corporate finance advisory respectively.

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