National Bank postpones key vote on takeover by KCB

The board of the National Bank of Kenya (NBK) postponed the key vote on the lender’s proposed takeover by KCB Group on Friday.

This as the bank’s management chose to instead subject the conversion of its preferential shares to shareholders, a pre-condition for the completion of the proposed takeover by KCB during its 50th Annual General Meeting (AGM).

Shareholders in the end gave an approval of re-designation of non-cumulative preference shares as ordinary shares on a one to one ratio.

The State through the National Treasury and the National Social Security Fund (NSSF) who make up the lender’s majority shareholders hold 1,135,000,000 preferential shares with the minority holding a further stock of 65,000,000 shares.

Change of heart

While NBK Chairman Mohamed Hassan had earlier this month informed shareholders of the backing of the takeover by the pair of majority shareholders, the bank’s management against expectations pushed forward queries related to the takeover.

The initial takeover document by the KCB Group which proposes a share-swap deal pegged on the exchange of 10 NBK shares for one of its own is explicit of the impending transaction.

Hassan however said the bank awaits the offeror’s approved document from the Capital Markets Authority backing the indecision on provision 7(5) of the Mergers and Acquisition regulations of 2002.

“We are waiting for the takeover documents from KCB which are expected to follow the approval of CMA and then we can get our transaction advisors to establish the valuation of the bank,” he said.

With Treasury and NSSF’s approval, in addition to backing from the Central Bank of Kenya (CBK), public sentiments are indicative of an already done deal this as the pair makeup the majority shareholding totaling 70.6 percent as of December 31, 2019.

NBK’s management is further unsure whether a special convening of shareholders is needed should CMA give a green-light.

New suitor

While KCB Group is the presently known groom, NBK remains the subject of other offers as entailed by CMA regulations which allow for counter offers for the soon to be bride under the offer period description.

“The competing offer shall serve a competing take-over offer document at least 10 days prior to the closure of the offer period,” reads part of the regulations.

The offer period is described as the period within 30 days post the disclosure of the initial offeror’s document or the term preceding regulatory approval by the CMA.

While NBK board has denied links to new-counter offers, the bank’s future-direction remains under the cloud of speculation ahead of the ending offer period.

Audit queries

The proposed KCB-NBK acquisition further remains the subject of both Parliament’s and the civil society watch with members from the latter group calling for the halting of the transaction through the courts under jitters of non-disclosure in a case that comes up for mention again of June 26.

Parliament meanwhile has been on the neck of NBK’s board challenging the valuation of the lender majority owned by the State while seeking to subject the bank’s financial statement to audits by the Office of the Auditor General (OAG).

The skeleton in NBK’s cupboard is however well documented on the public domain and consists on the depletion of the bank’s capital reserves, a factor which threatens the existence of the lender in the long term.

Both NBK Chief Executive Officer Wilfred Musau and Central Bank of Kenya (CBK) Governor Patrick Njoroge have welcomed takeover talks for the struggling lender knowing very well, the stakes at play.

“The bank was significantly in breach of regulatory capital ratio’s as at 31 December, 2018. This condition indicates that a material uncertainty exists that may cast significant doubt on the bank’s ability to continue as an ongoing concern,” reads the group’s audit of its 2018 books by PwC.

The deterioration of the bank’s impairment costs, a factor made worse by revamped banking sector regulations to include the provisioning of expected loan-losses under the IFRS9 accounting standards.

NBK’s statutory credit reserve which recently sat more than Ksh.13 billion sunk to Ksh.3.3 billion at the end of 2018 threatening to crossover to the red defined by CBK’s core capital requirement of Ksh.1 billion for commercial banks.