Customers at Consolidated Bank’s Koinange Street branch in Nairobi. FILE PHOTO | NMG Consolidated Bank of Kenya is seeking the Treasury’s bailout to repay holders of its Sh1.6 billion corporate bond that was due for redemption Monday.
In a statement, the bank offered to pay investors three months after Monday’s maturity date, when it hopes to have received a cash injection from the Treasury. Consolidated Bank is 85.8 percent owned by the State.
“The proposal for extension of the maturity date has been made in consultation with, and in full support of the National Treasury, the majority shareholder. The extension is necessary to allow National Treasury to finalise the process of capital injection into the bank,” said the lender.
The bond default raises queries on the financial position of the bank, even as chief executive Thomas Kiyai declined to comment on the matter Monday.
Fragility
The missed payment also underlines the continued fragility of the corporate bond market that has seen investors suffer losses of more than Sh13 billion from several issuers of the debt instruments in the past few years.
The Nairobi Securities Exchange (NSE)-listed Kenya Re, which bought Consolidated Bank bonds worth Sh100 million, is among the institutions that are exposed to the State-owned lender. Another firm, Centurion Holdings, invested Sh154.7 million in the corporate paper.
Ownership of the bonds could have changed since the securities are listed on the NSE where they were tradeable.
The bank defaulted on the same day that insurer UAP Holdings redeemed its Sh2 billion bond using new loans.
Consolidated Bank in July 2012 issued a series of the debt securities –senior notes paying fixed interest rate of 13.5 percent and subordinated notes yielding 13.25 percent.
The statement did not say how much new capital it expects to receive from the government.Consolidated Bank joins a list of corporate bond issuers that have defaulted or restructured their debt, roiling a market segment that has continued to shrink on the back of investors’ loss of confidence.Asset managers, insurers, pension funds and individual investors have lost billions of shillings from buying the debt instruments that offered slightly higher rates compared to risk-free government bonds of similar maturities.Retail chain Nakumatt Holdings remains the biggest defaulter, having collapsed with unpaid commercial papers amounting to Sh4.7 billion.Chase Bank also went into administration of Kenya Deposit Insurance Corporation (KDIC) in 2016 after raising Sh4.8 billion from the bond market.The lender was later acquired by Mauritius’ SBM Holdings, […]