Bank of Kigali hopes to mobilise Rwf60 billion ($70 million) in a rights issue at the end of this month as it seeks to raise capital to finance big card projects and boost its capital buffers.
The new equity injection is set to bolster shareholders’ funds from $140 million to $210 million, a capital level which positions the lender to book more business in a competitive banking environment.
The lender will issue 222,222,222 new shares to its shareholders at a ratio of one for every three held, according to Renaissance Capital Rwanda, the lead transaction advisor.
The shares will cost Rwf270 ($0.31) each, a discount meant to encourage shareholders to increase their stake in Rwanda’s most profitable and largest bank by assets and market share.
Financial experts say the tough regulatory requirement for owners of banks to hold large capital reserves also forced managers of Bank of Kigali to call for more capital injection.
The central bank started enforcing the Basel III framework which requires lenders to maintain high capital buffers to withstand financial and economic shocks early this year.
The regulation which came into force in January, has forced several banks in Rwanda to seek fresh capital injection from shareholders.
“The bank needs big buffers capital to comply with Basel II and III financial,” said Bank of Kigali chief financial officer Nathalie Mpaka.
As a result of the law, the paid-up capital in the banking industry increased by 26 per cent to Rwf262 billion ($301 million) in June this year, from Rwf209 billion ($240 million) in June 2017.
Ms Mpaka said that part of the money Bank of Kigali is raising will be invested in expanding its subsidiaries which are in early stages of growth as it seeks to diversify its revenue sources to generate returns for investors.
The lender seeks to position BK General Insurance as a leading insurer by injecting in more capital to enable it underwrite bigger and more businesses.
The bank is considering venturing into the life insurance business. This calls for injection of more capital, to either acquire an existing insurer or have a green field investment.
Analysts say the recent selling of 30 per cent of its insurance business to the Mauritian group Swan General for nearly $1 million, to enable it tap into Swan’s expertise in life and general insurance business.
The other subsidiaries are BK Capital, a stock brokerage firm and BK Techouse, a technology services business whose contribution to the group revenues has remained insignificant. But it remains strategic for the business as it seeks to become a one-stop financial services provider.
While Bank of Kigali is yet to get regulatory approval from the Kenya Capital Markets Authority to cross-list its shares on the Nairobi Securities Exchange, it expects to start trading new shares on the RSE, and on NSE on November 30.
“The new shares will rank pari passu [side by side] with the existing issued ordinary shares of BK Group PLC, including the right to receive dividends or distributions paid or declared after the date of allotment,” says Renaissance Capital.