The Government has pushed through its agenda in the conversion of preference shares held in National Bank of Kenya (NBK), dealing workers’ pension savings at the public pension fund a huge blow.
Implications of the agreement will be significant, especially at KCB, which is in the process of finalising the complete takeover of NBK.
Individual and institutional investors will be the biggest losers in the agreed structure with their shareholding diminishing from 29.5 per cent to about 6.7 per cent.
The Government has leapfrogged the National Social Security Fund (NSSF) as the biggest shareholder in NBK, thanks to the hitherto elusive agreement.
Jointly, the two entities control nearly 93.2 per cent of NBK, pending shareholder approval on the treatment of the 1.2 billion preferential shares.
In the proposed formula, the preference shares will be converted one-for-one with ordinary stock, which constitutes the actual ownership.
Holders of preferential shares earn a predetermined dividend over time, but do not have voting rights, unlike for ordinary shares.
NBK Company Secretary Habil Waswani has announced that the retirement of the preference shares will be an item of discussion in the upcoming annual general meeting slated for June 14.
He added that the proposals would be subject to regulatory approvals of the takeover of the bank by KCB – the country’s biggest lender.
“Each of the 1.2 billion non-cumulative preference shares, each being part of the company’s share capital, be re-designated as one ordinary share,” said Mr Waswani in a notice.
It is unlikely that the ordinary shareholders could during the AGM overturn what appears as a foregone conclusion on the proposal, while their approval would be a mere formality.
NSSF had previously objected to the conversion rate of the preference shares, fearing that its stake would be diluted - as it now appears certain.
It has, however, not made public its proposed conversion formula, even though it has all along been clear there was a struggle with the National Treasury.
The taxpayer would effectively control 66 per cent of the troubled lender, up from 22.5 per cent, while the public pension fund’s stake falls from 48 per cent to just under 27 per cent.
Failure to strike an agreement earlier also discouraged potential investors from rescuing NBK, bogged down by legacy issues, including a bloated workforce and a huge bad loans book, from imminent collapse.
A prior attempt to raise capital from shareholders through a rights issue also collapsed as the two main shareholders locked horns on who actually had a bigger stake, and hence control. But with the entry of highly-profitable KCB as the preferred buyer, it gets even clear what was at stake.
NBK shareholders will be granted a single share of KCB for every 10 held, meaning that the public will have an even bigger stake in the country’s largest lender.
Currently, the National Treasury, which holds investments in trust for the public, owns 537.4 million shares in KCB (or 17.53 per cent) ahead of NSSF, which has 173 million shares (5.64 per cent).
In the new ownership structure after the NBK takeover, the State will increase its shares to 97.6 million while the public pension scheme’s stake will rise to 39.8 million, mostly attributable to the preference shares held in the troubled bank.
Analysts were reluctant to indicate what the transaction would mean for either lenders, saying it was too early considering that while the deal’s conclusion would have huge implications, it was still subject to several approvals.
KCB shareholders will also be sitting next week Thursday to deliberate the acquisition of NBK, as the first of many consents that will be sought before the deal can materialise.
Meanwhile, KCB yesterday announced a net profit of Sh5.7 billion for the first quarter of 2019, an 11 per cent growth from Sh5.1 billion during a similar period last year.
Though income from lending was up only seven per cent, growth was buoyed by saving on costs by four per cent and growing fees and commission by 12 per cent.
“The performance is as a result of a sustained strategy that is anchored on a simplified customer journey and products that provide solutions to our customers,” said KCB Group Chief Executive Joshua Oigara.
He said the upgrade of their digital banking platform in 2018 drove 91 per cent of total transactions out of the branch.
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