Consolidated Bank investors agree to wait longer for cash

Consolidated Bank has promised holders that its pending Sh1.5 billion bond will be redeemed next month.

The seven-year corporate bond, which was issued to shore up the lender’s capital and attract customers, was set to mature on July 22, 2019 but will now mature on October 22, under the same terms with additional interest payments for the extension.

With this confirmation, the bank has shone spotlight on the National Treasury amid a financial crunch which has seen the government enhance austerity measures, but still expected to inject more capital into the institution.

The lender met with noteholders on Tuesday and took them through consequent amendments of the pricing supplement pursuant to resolutions and maturity dates of the notes confirmed.

Floating rates

“The manner in which the rates of interest of the floating rate notes is/are to be determined; and the redemption dates of the senior and subordinated notes issued by the issuer were accordingly revised with effect from July 22, 2019,” reads in part a statement by Wakonyo Igeria, the Consolidated Bank company secretary.

The bank had in July 2012 issued a series of the debt securities, which included senior notes paying fixed interest rate of 13.5 per cent and subordinated notes yielding 13.25 per cent, respectively.

Nairobi Securities Exchange (NSE)-listed Kenya Re and Centurion Holdings are among firms that invested in the corporate paper but ownership could have changed at the bourse over time.

“The average of the Kenyan Government 91-day Treasury bill rate will be the published rate from the weekly auction held by the Central Bank of Kenya one week preceding the interest period,” the bank’s statement added. 

Churchill Ogutu, an analyst at Ghengis Capital, said this decision was a warning bell that whatever activities the bank wanted to achieve did not pan out.

“It is also a bad signal to the corporate bonds market. Remember Real People, the Chase Bank and Imperial Bank bonds which were suspended due to liquidity challenges? Corporate papers have since been down after I&M deal exploded,” he said.

Microfinance firm, Real People last year defaulted on Sh1.2 billion worth of bonds and sought to convert the debt into equity while Chase Bank went into administration of Kenya Deposit Insurance Corporation (KDIC) in 2016 after raising Sh4.8 billion from the bond market.

The same year Imperial Bank also collapsed after issuing a Sh2 billion bond. Amana Capital CIO Reginald Kadzutu said missed payments underline the fragile sector’s underbelly, adding that the Treasury,  which is also hard-pressed with a liquidity challenges, must play ball.

“Investors have lost billions in the corporate bond market. The holders will definitely be compensated because Treasury cannot afford another bank defaulting, otherwise there will be a run,” he added.

Limping company

Independent Analyst John Kirimi said Consolidated Bank has been a limping company amid claims it was to be merged with National Bank which has since been gobbled up by KCB Group. 

He said past efforts to privatise the lender and other government-owned enterprises have been frustrated by red tape. “This deal is just an extension of bait from July 22  to October 22,” he added.