WARNING: This is Version 1 of my old archive, so Photos will NOT work and many links will NOT work. But you can find articles by searching on the Titles. There is a lot of information in this archive. Use the SEARCH BAR at the top right. Prior to December 2012; I was a pro-Christian type of Conservative. I was unaware of the mass of Jewish lies in history, especially the lies regarding WW2 and Hitler. So in here you will find pro-Jewish and pro-Israel material. I was definitely WRONG about the Boeremag and Janusz Walus. They were for real.
Original Post Date: 2010-04-05 Time: 16:00:03 Posted By: News Poster
By Nick Wachira
Nairobi – Investors in National Bank of Kenya face a massive share dilution if a sell-off plan being pushed by the Privatisation Commission were to be endorsed by the Cabinet, its biggest shareholder has warned.
At the heart of the controversy is a plan calling for the Treasury to convert $60 million in preference shares – which are tantamount to a loan to the bank inasmuch as they pay a fixed dividend and do not confer voting rights – into ordinary equity shares as a prerequisite for selling more shares of the bank to the private sector.
PricewaterhouseCoopers has proposed that the preference shares be converted on a one-for-one basis with equity shares.
This proposed conversion would create 1.135 million ordinary shares for the government – making it at one fell swoop the majority shareholder with a controlling interest.
The National Social Security Fund, which is engaged in a fight to block NBK’s privatisation under the formula worked out by PwC — warns in a confidential document seen by The EastAfrican that between a quarter and three-quarters of its investment in NBK could be wiped out if investors react negatively to the shock of such a massive share dilution.
NSSF in turn is also proposing to buy out the government’s investment in NBK, a move that would boost the Fund’s stake to 70.5 per cent.
NBK has for nearly a decade been the proverbial sick man of Kenyan banking, but not any more.
With the recent earnings report showing Kenya’s 10th largest bank starting to bounce back to health, a vicious food fight over who should take the biggest share of its future profits has started heating up, as the Privatisation Commission lays the ground for its privatisation over the next one year.
Were the PwC plan to be adopted, it would be tantamount to nationalising NBK and wiping out private investors – at least for a while – before selling to trade buyers such as a bigger local or foreign bank or strategic buyers such as private equity firms who would act as anchor shareholders.
Under the PwC plan, the Treasury shareholding in NBK would initially increase from the current 22.5 per cent to 71 per cent. NSSF’s holding would be diluted from 48 per cent to 25 per cent, and the public would move from holding 29 per cent to just four per cent.
The ultimate aim after this restructuring, however, is to reduce the government’s holding to 20 per cent and NSSF’s to 15 per cent by selling 51 per cent of the company to a strategic investor and boosting the shares held by individual investors to 14 per cent.
Despite its protests, NSSF too holds $15.6 million worth of these lucrative preference shares in NBK, which it was forced to take up alongside the Treasury in 1998 in order to save the bank from collapse after decades of frittering its capital lending to politicians and government departments that never paid up.
These amounts were originally invested as shareholder loans, but converted into preferred equity in 2003 in order to give NBK a stable capital base acceptable to the Central Bank of Kenya, the banking regulator.
Though these balance sheet manoeuvres gave the bank breathing space, they did not cure its capital shortage. The bank held $79 million in accumulated losses, which were only eliminated last year.
The capital shortage was fixed in 2006 after the Cabinet approved the repayment of $281 million’s worth of debts owed to NBK by state-owned corporations and government departments.
This repayment was in the form of non-tradable Treasury bonds redeemable over maturities of two to 15 years.
NSSF, in its response to the proposal, says this conversion rate could potentially reduce the value of its 23 per cent share to $57 million in the best situation at the anticipated price of Ksh10 (75 US cents) as set by PwC or by 75 per cent at worst if the share price crashes.
“If the shock factor and volume of shares on the market are taken into consideration,” says NSSF, “It would be prudent to assume the market value would drop to Ksh2 (1.5 US cents) per share. NSSF’s total investment in the bank would therefore be reduced from $57 million (Ksh4.298 billion) to $8.8 million (Ksh662 million), which translates into a quarter of what the Fund invested in the 1990s without lost income.”
The share conversion is an issue that investors have largely ignored for as long as NBK continued to groan under the debilitating weight of bad debts.
But now, with the bank starting to make money and presenting a clean balance sheet, investors on the Nairobi Stock Exchange who shunned the share have bid it up by twice its value to Ksh58 (77 US cents) over the past one year.
However, as NBK continues to make money, and potentially is in a position to pay handsome dividends, the terms negotiated when the government’s shareholder loans were being converted into preference shares in 2003 will stand revealed as a booby trap for other shareholders.
The government’s preference shares are structured with the same rights as those of ordinary shares, with the exception that they earn an additional interest of between zero and six per cent when a dividend is declared, but have no voting rights.
They also do not accumulate interest in the years that NBK makes losses.
However, when it comes to sharing the profits of the company, they attract the same dividends as ordinary shares.
For instance, if NBK were to pay out a $10 million dividend, the government (though it only owns 22.5 per cent of the company) would take $8.5 million, and the rest of the shareholders (including NSSF, which owns half the firm) would get $1.5 million.
In this situation, it is clear that since 85 per cent of NBK’s economic value accrues to preference shareholders, it will be unattractive to a potential strategic investor interested in buying 51 per cent of the company – because they would nevertheless earn less than 10 per cent of the dividend in any particular year.
This is the reason why the Privatisation Commission is pushing to disentangle this shareholding structure to make NBK attractive to potential strategic or trade investors.
The opposition to the conversion of preference to ordinary shares by the NSSF, the largest shareholder, and its offer to buy out the government, can thus be seen as stemming from a desire to continue enjoying the benefits of this lopsided deal.
“The preference shares are therefore so interwoven with the ordinary shares that it would not be wise to deal with one class of shares without at the same time dealing with the other. Hence the need for the conversion of preference shares to ordinary shares,” says NBK managing director Reuben Marambii.
To end the logjam created by this issue, Mr Marambii proposes a shareholding restructuring that delinks preference shares from enjoying the same rights as ordinary shares by eliminating their right to rank the same as ordinary shares when it comes to payment of dividends.
In compensation, preference shareholders would get interest rates linked to long-term bonds with coupons of perhaps 10 per cent.
This interest would accumulate annually whether NBK makes money or not.
“Each class would have its own market and would be sold separately if necessary,” says Mr Marambii, “Privatisation of NBK would then proceed on the basis of ordinary shares only, leaving the issue of preference shares to be decided later.”
Original Source: 
Original date published: 5 April 2010
Source: http://allafrica.com/stories/201004050496.html?viewall=1