Bank’s search for investor collapses

Consolidated Bank of Kenya’s bid to raise Ksh3.5 billion ($35 million) through a rights issue and cede a majority shareholding to a strategic investor has collapsed.

The EastAfrican has learnt that the deal collapsed about three weeks ago after the targeted strategic investor pulled out of the transaction at the last minute.

“The internal restructuring of the bank did not go through as planned. You can talk to the management for more details about this,” a source close to the transaction told The EastAfrican.

The Privatisation Commission had hired a consortium led by PKF Consulting Ltd to help the bank with its internal restructuring.

“We are back to the drawing board as far as the privatisation of this bank is concerned,” the source added.

Details of the bid remained scanty as the bank’s chief executive Thomas Kiyai refused to comment on the deal.

“I will call you another time when the rights issue is ready,” Mr Kiyai told The EastAfrican.

Early this year, Mr Kiyai said a local or international investor was likely to inject cash into the bank by March, and pave the way for privatisation of the cash-strapped lender.

“We are confident that by the end of this first quarter (January-March) we will have somebody on board. We look forward to identifying someone who will be willing to commit themselves to that cause,” Mr Kiyai told the Business Daily newspaper in January.

The bank had created an additional 175 million preference shares valued at Ksh3.5 billion ($35 million) to be allocated to the strategic investor who was expected to acquire the shares and eventually own a controlling stake in the bank by converting them into ordinary shares.

CASH CALL

The cash call was meant to shore up the bank’s balance sheet and improve its general financial health to make it attractive to investors. It was to be underwritten by a firm or individuals.

The government owns 85.8 per cent of the bank, with 14.2 per cent of the shares spread over 25 parastatals and other quasi-government organisations. These are the National Social Security Fund (5 per cent), the defunct Kenya National Assurance (4.3 per cent), the Kenya National Examinations Council (1.5 per cent), Kenya Pipeline Company (1.6 per cent) and National Hospital Insurance Fund (1.3 per cent).

Under the proposed cash call, the government and about 20 minority shareholders were not expected to take up their rights.

Minority shareholders who were expected to participate in the cash call included the Local Authorities Pension Trust, Local Authorities Provident Fund, NSSF, Kenya Reinsurance Corporation and the Co-operative Bank of Kenya.

There was an earlier attempt by the lender to raise Ksh1.8 billion ($18 million) from its shareholders after the government withdrew its commitment to support the cash call.

An attempt to sell Consolidated Bank in 2009 failed after Nationwide Finance Company Ltd, one of the financial institutions that the government merged to form the bank in the wake of Kenya’s first banking crisis in the mid-1980s, moved to court to stop the sale on the grounds that the institution’s ownership was in dispute.

Nationwide Finance owners claimed to have been forced to transfer ownership of their shares in the company for Ksh10 million ($100,000) and had been engaging the government for their share since 2007.