Banks seek bigger role in IPO

Bankers are rooting for a bigger role in the up-coming Safaricom initial public offering, proposing that investors be allowed to apply for shares backed by bank guarantees instead of cash. Barclays Bank of Kenya managing director, Adan Mohamed, says this will solve the problem of delays in refunding the investors after shares allocation.
It will also avoid a replay of the cash crunch that was witnessed during the KenGen initial public offering, where a total of Sh26 billion was left stuck in one bank.
This forced other banks to borrow from the receiving bank to address short-term cash shortages - in what is known as overnight lending.
Observing that all the IPOs issued in the past have been oversubscribed by a huge margin, Mr Mohamed said the challenges that they presented should serve as learning points for the Safaricom IPO.
“We should look for ways to avoid locking in investors funds for a long period and bank guarantees is one such way,” he said yesterday during the listing of the bank’s Sh5 billion seven-year corporate bond at the Nairobi Stock Exchange.
The Barclays Bank CEO said the IPO has elicited great interest among both institutional and individual investors because of its size. This will see many investors mobilising funds by, among others, selling their existing shares or taking loans against the shares.
Mr Mohamed said the bank is ready to issue the guarantees even to individual investors so long as the Capital Markets Authority (CMA) makes the “rules clear.”
On the bank’s medium term note programme, the largest corporate bond to be issued in the Kenyan market, the CEO said its first Sh1 billion tranche was oversubscribed by 15 per cent.
“From the uptake of this bond, it is clear that investors have an appetite for financial instruments that help them diversify their portfolios,” he said yesterday at the NSE.
Long term financing
Proceeds of the bond, of which the second and third tranches will be issued in mid 2008 and 2009 respectively, will be used for long-term financing in real estate, agriculture and technology sectors.
It has a floating rate of 60 basis points above the 91-day Treasury bill rate.
The issue was arranged by Absa Capital, Barclays Capital’s Investment banking subsidiary for Africa and Barclays Financial Services Limited, BBK’s local investment banking business.

SOURCE: DAILY NATION