The Development Bank of Kenya Limited (DBK) is looking for a law firm to guide it in floating a rights issue, as it seeks to sell new shares from existing shareholders to comply with higher capital requirements.
The search for a law firm comes months after the lender disclosed that it was looking for a consultant to value the bank ahead of the planned cash call.
The latest development signals that the lender is pushing on with the rights issue plan, coming at a time when the country has revised the minimum core capital from Sh1 billion to Sh10 billion. Lenders below this threshold were directed to incrementally grow the figure over a five-year period.
Banks are required to close this year with a minimum core capital of Sh3 billion, raise it to Sh5 billion by the end of 2026 and Sh7 billion by the close of 2027. The lenders will then be required to boost the figure further to Sh8 billion by end of 2028 and take it to Sh10 billion by December 2029.
DBK closed September last year with a core capital of Sh2.14 billion or Sh857 million below the minimum of Sh3 billion that will be required by the end of this year.
“The DBK... is in the process of raising capital through a rights issue. To do this, the bank requires legal counsel to provide legal guidance throughout the process,” said the lender in a tender document.
“The primary objective is to acquire legal counsel to provide legal guidance throughout the process with a particular focus on reviewing the information memorandum to assess its legal completeness.”
The lender is 89.3 percent owned by the government through Kenya Development Corporation. The other shareholder is TransCentury Limited with a 10.7 percent stake.
A rights issue would mean the government injecting in additional money for the transaction to be successful. This will mark a departure from the push to sell the institution, which is marking 60 years of operation, having commenced financing operations in 1964. In the prior disclosure, DBK said it wanted a consultant to determine the fair market value of the lender as a basis for setting the offer price for the new shares.
The bank has generally been profitable in the past five years. The only loss over this period was in 2022 when it returned a net loss of Sh83.8 million before recovering to a net profit of Sh47.92 million in 2023.
DBK nine-month net profit for 2024 was at Sh54.62 million, surpassing the earning for the prior full year. The State’s prior plan was to sell the lender, together with Consolidated Bank of Kenya where it has a 93.4 percent stake.
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