Talks have begun between Kenya’s National Treasury and the National Social Security Fund on how to relinquish their preference shares in the National Bank.
The decision is to pave way for a cash call that would dilute the government’s stake in the struggling state-owned lender.
If successful, the move could pave way for a rights issue to recapitalise the bank after the two major shareholders shelved a plan to inject Ksh4.2 billion ($420 million) in the form of a subordinated loan into the business.
The loan proposal has been in the pipeline since 2016.
The government is wary of the proposed debt, which is riskier since it is unsecured and can only be paid after claims of secured creditors have been met in the event of liquidation of the bank.
Sources say that the two shareholders are currently considering the possibility of converting their preferred stocks into ordinary stocks.
“The major shareholders are still negotiating and looking at various options for converting their preference shares to ordinary shares,” the government source said.
Holders of preference shares in a company are given first priority in terms of compensation when a company is liquidated compared with ordinary shareholders.
The bank, which is listed on the Nairobi Securities Exchange, was last week trading at around Ksh5.6 ($0.05) per share, having lost over 35 per cent of shareholder value in the past 12 months.
The National Treasury and NSSF control a 22.5 per cent and 48.1 per cent shareholding in National Bank respectively.
The two anchor shareholders hold a combined 1.12 billion preference shares in the bank.
“If the government agrees to the rights issue, it will cede its majority shareholding through the issue. The small shareholders will take up their rights but the government has not budgeted for that,” said our source.
Efforts to get a comment from the National Treasury Cabinet Secretary Henry Rotich did not bear fruit as our calls went unanswered.
NSSF, the workers’ pension body has been opposed to the proposal to bring a strategic partner on board over fears that vested interests in the bank’s ownership could destroy the state-owned lender.
“We don’t want a strategic partner. My position has been very clear that the bank should do a rights issue and sell more shares to the public through an initial public offering. Kenyans will buy these shares,” Francis Atwoli, the secretary-general of the Central Organisation of Trade Unions, told The EastAfrican in an earlier interview.
“The issue of a strategic partner has a lot of vested interests.”
Initial attempts by National bank to raise Ksh13 billion ($130 million) through a rights issue in 2014 flopped after the proposed transaction was rejected by the government and the Capital Markets Authority.
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