Kenya Commercial Bank allays price fears

June 23, 2010

, NAIROBI, Kenya, Jun 23- The Kenya Commercial Bank (KCB) Group has allayed fears that the floating of an additional 887 million shares in their ongoing rights issue will lead to a dilution of their shares in the market.

Although the price has been affected following the announcement that the issue will be offered at a discounted rate of Sh17, Chief Executive Officer Martin Oduor-Otieno expressed confidence that the share would stabilise in the long run.

This he said stems from the fact that the Sh15 billion they seek to raise would be invested in ventures that will give a good return to the shareholders.

“The reality is that in the short run, you will see the prices come down. The important thing is that this money is not coming to sit idle, it is going to be invested in the growth of our business to deliver some very elaborate profit targets that we have in the bank,” he assured.

The closing price for the share was Sh18.65 on Wednesday compared to the Sh20.75 posted on Monday last week.

Although the CEO said they have not drawn up a clear structure of which areas the money will be injected in, he said the mortgage lending business as well as their support for the Small and Medium Enterprises would be major beneficiaries.

“We need long term funds to grow our mortgage business; currently we are lending up to 25 years on our mortgages and we don’t have that kind of deposits so we will use this money to grow our mortgage books,” he said in a meeting with stockbrokers.

The offer for the rights issue in the ratio of two ordinary shares for every five held and which is the largest in the Nairobi Stock Exchange history, was prompted by the need to have enough capital. The Group closed the year with a balance sheet of over Sh195billion which put pressure on its ability to grow thus the need to offer the issue which becomes the third in six years for the bank.

Proceeds are expected to meet the bank’s capital needs for the next two to three years and enable it to consolidate its business in the five markets that it operates in. The bank hopes that these initiatives will in turn enable it to grow its market share from the current 15 percent to about 20 percent.

A lot has been pegged on this issue and thus the reason why the bank is rolling out an aggressive communication campaign aimed at popularising the issue to ensure its success. The drive will include media advertisements and road shows in major cities in the East African region.

Besides the commission they pay stockbrokers that will be selling the issue, the bank has also given Sh4million to the agents for drumming up support for the offer which closes on July 23.

“We are out to raise Sh15billion and for it to be successful the investor community as well as all stakeholders need to be fully engaged and active,” Mr Oduor-Otieno.

Arrangements have also been made to ensure that any issues that are not taken by the existing shareholders. In the event of an oversubscription, lead advisors have pledged to have the refunds processed in less than five days.

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