NAIROBI: National Bank of Kenya (NBK) shareholders are staring at massive dilution of their stake in the bank as Treasury and the public pension scheme, National Social Security Fund (NSSF), convert their preference shares into ordinary shares.
The bank has been keen to retire the interest-earning preference shares that have been weighing down its profits and forcing it into a dividend-payment drought for its ordinary shareholders.
Preference shares are shares in which an investor owns a stake in the issuing company with a condition that whenever the company decides to pay dividends, the holders of the stock would be the first to be paid. And in the event of a company going bankrupt, preferred stock shareholders have a right to be paid from company assets first.
The share conversion by the bank’s big shareholders comes ahead of a planned privatisation of the State corporation. But the strategic restructuring plan will see minority shareholders who currently control a collective stake of 29.4 per cent slashed to just about six per cent, Chief Executive Munir Sheikh Ahmed told the Standard.
“There would be a major flip in the shareholding structure once Treasury and NSSF convert their preference shares,” Mr Munir said after a board meeting yesterday. He reckons that the minority shareholders’ stake will be “no more than five or six per cent”. Conversion of the preference shares will also see the State’s stake rise sharply from the current 22.5 per cent.
The preference shares have been earning a negotiable interest rate of between zero and six per cent annually besides entitlement to dividend earnings like the ordinary shares. NBK’s past bad loans had forced the bank to convert the Treasury and the NSSF debt to preference shares in a deal estimated at Sh5.6 billion.
This was when the bank badly needed a bailout and did not have the financial muscle to repay debt it owed Treasury and NSSF at the time.
But it is the share conversion that the nearly 49,000 minority shareholders would find a major upset with their collective stake in the bank, declining sharply by more than 80 per cent.
Capital Markets Authority (CMA) is yet to give its nod to this latest strategy. The Treasury Cabinet secretary has told The Standard in a previous interview that the State was seeking to restructure the bank, and possibly merge it with other struggling Government-owned lenders, before a rights issue is approved.
Munir confirmed yesterday that the merger was among the options that the Treasury has been weighing in the restructuring of the bank.
“We are only executives who can only implement directions presented by the shareholders,” Munir said in relation to the ongoing restructuring that is championed by the Government.
