NCBA Group chief executive John Gachora during a December 2019 interview. FILE PHOTO | NMG Banking group NCBA is set to redeem its Sh7 billion corporate bond 91 days ahead of its December 14, 2020 maturity date, a move that will see it save Sh222.5 million in interest expenses.
The Nairobi Securities Exchange-listed firm says it will now settle the debt on September 14 using internal cash flows.
The bond was issued on December 22, 2014 by CBA Group which merged with the former NIC Group to create the NCBA Group. The merged entity inherited the liabilities of the two former banks.
The debt has a fixed coupon of 12.75 per cent payable semi-annually and will have accrued interest of Sh222.5 million by the early redemption date, with the bank saving a similar amount by cancelling the obligation.
“We are paying the bond from our internal cash flows,” John Gachora, NCBA’s chief executive told the Business Daily , adding that the lender has plenty of liquidity.
The early bond redemption will reduce interest expenses and is one of the optimal uses of capital at this time when lending has become riskier with the outbreak of the Covid-19 pandemic, Mr Gachora said.
Bondholders on record as of August 12 will be paid their principal together with the accrued interest on the new maturity date.
Settling the debt ahead of time marks NCBA’s increased conservatism. The lender had earlier declared a final dividend of Sh1.5 per share for the year ended December 2019, but later cancelled the proposed payout citing the risks posed by the pandemic.
The move saw it save Sh2.2 billion. To preserve capital while offering shareholders an opportunity to raise cash through selling stock on the NSE, the bank is capitalising Sh748.8 million to issue bonus shares at a rate of one for every 10 held.
NCBA’s redemption of its debt will further diminish the corporate bond market that has seen a drought of new issues in the wake of defaults and fraud that has cost insurers, fund managers and high-net-worth individuals billions of shillings.
East African Breweries Limited, Family Bank and property developer Acorn will be the only credible firms with outstanding bonds of Sh6 billion, Sh2 billion and Sh786 million respectively, according to NSE data.Chase Bank and Real People defaulted on their Sh4.8 billion and Sh2.6 billion bonds respectively.