KCB Group could be required to inject as much as Sh40 billion into troubled State lender National Bank of Kenya (NBK) to plug a gaping hole in the books as part of a takeover.
Renaissance Capital says while the government wants to get rid of troubled NBK, it may also require KCB to take over two other State-run banks (Consolidated Bank of Kenya and Development Bank of Kenya) as part of the deal.
“We estimate NBK will require a capital injection of Sh19 billion to meet the minimum capital requirement of 14.5 per cent. This would increase to Sh40 billion if NBK were to provide fully for its NPLs,” said Renaissance.
“The contentious point here is whether the government would be willing to inject the additional capital required, as KCB has expressed an unwillingness to do so. This could mean the government’s stake in KCB increases if additional capital is provided in exchange for new shares.”
KCB Group is understood to be angling to buy a 70 per cent stake in the NBK. The government is said to be looking to sell the stake in NBK, seeing it as the best shot at finding a lasting solution to the perennial problems the lender has faced over the years.
In case of the takeover, the researchers warn that half of the inherited loan book of Sh39 billion will come under stress post acquisition and KCB would be required to make a 100 per cent provision.
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“If we assume higher impairments are taken to offset the earnings boost from cheaper deposits, we estimate that it could take about four years to see the real benefits of this acquisition (not factoring in cost savings from branch rationalisation or the cost of integrating IT systems),” it says.
KCB is said to have approached the Treasury and the National Social Security Fund (NSSF), the major shareholders of NBK at 58 per cent, with a written proposal to acquire a majority stake.
Under the reported deal, the Treasury, the NSSF and other significant minority shareholders of NBK will, in a share swap transaction, be issued with KCB shares in exchange for NBK shares based on the market valuation of both banks.
This will see the Treasury and the NSSF’s collective ownership in KCB increase from 23.6 per cent to over 30 per cent.
Last month, the Capital Markets Authority, however, said it was not aware that KCB had bid to acquire a stake in NBK, urging investors to exercise caution when trading in the lenders’ shares. (Copyright: Business Daily)