KINGDOM Financial Holdings (KFHL) might soon embark on a rights issue to capitalise its bank if it fails to find a suitor to bolster the companyâ€™s balance sheet, it emerged yesterday.
The Reserve Bank said every bank is required to comply with at least half has the prescribed minimum requirement by September this year, and be fully compliant by March 31 next year.
Insiders yesterday said KFHL was left exposed after its de-merger with Meikles Africa Ltd on Monday and was in need of money to ensure it operates viably.
â€œThe situation is not as bad as what is being said on the market,â€ an official said. â€œKingdom just needs extra money to guard against the unknown after the storm.â€
A rights issue is a way in which a company can sell new shares in order to raise capital. Shares are offered to existing shareholders in proportion to their current shareholding, respecting their pre-emption rights.
The price at which the shares are offered is usually at a discount to the current share price, which gives investors an incentive to buy the new shares. If they do not, the value of their holding is diluted.
A rights issue by a highly geared company intended to strengthen its balance sheet such as KFHL is often a bad sign as profits would be low.
KFHL is said to be working on settling the shares issues. Sources also said CEO Nigel Chanakira has indicated that he is prepared to buy shares from shareholders who expresse a desire to sell their stocks.
In terms of the resolutions, Kingdom Meikles shareholders will get one KFHL share for every one held through a dividend in specie. In order to repay the US$22,5 million held in KFHL for capitalisation, the KFHL shares will be redeemed back as preference shares to Meikles Ltd.
KML finance director Bryan Thorn said 234 million shares will be ringâ€“fenced to represent the Reserve Bankâ€™s capital, which will be reallocated from KFHL to KML.
KFHLâ€™s equity stood at US$34 million including the US$22,5 million as atÂ December 30 2008.
The banking group which operates a discount house, a stockbroking firm and an asset management firm is said to have started laying the groundwork for heavy funding requirements in the post de-merger era.
Although Chanakira came out second best after the de-merger, he is on record as saying he had no regard to what transpired as he behaved in a â€œChristian like behaviourâ€ and that his empire was standing on both feet.
KFHL is said to be among several banks targeted for partnership or takeover by South African banks.
If concluded, the deal could help re-capitalise KFHL, which will soon be re-listed on the local bourse by way of introduction.
According to a circular by the Reserve Bank, commercial banks must have a minimum capital requirement of US$6,25 million by September and US$12,5 million by March 31 next year.
Merchant banks and building societies would be required to have at least US$5 million by September and US$10 million by March next year.
Finance and discount houses are required to have a minimum capital adequacy ratio of US$3,75 million each by September and US$7,5 million each by during the same period next year.
Asset management companiesâ€™ minimum equity requirements have been pegged at US$1,25 million for September and US$2,5 million for March 2009.
Sources said apart from KFHL, another listed commercial bank whose equity capital did not comply with the prescribed minimum capital levels had submitted a detailed re-capitalisation plan to the Reserve Bank.
There are five commercial banks listed on the Zimbabwe Stock Exchange â€“â€“ CBZ, NMB, ZB Bank, FBC Bank and CFX Bank.
Analysts however ruled out CBZ which has been giving loans through its building society and commercial bank.
â€œBanking institutions without realistic potential to maintain adequate capital levels commensurate with their risk profiles on an on-going basis should seriously consider mergers and consolidations,â€ the Reserve Bank said in a statement.
This is part of the Reserve Bankâ€™s capital verification exercise across the sector to determine the capital position of every banking institution.Â
BY PAUL NYAKAZEYA