Shareholders of Bank of Kigali will on December 6 vote on whether the lender should raise $100 million fresh capital to fund big card projects, encouraged by the rebound in the economy that is expected to spur an appetite for credit.
The Rwanda Stock Exchange-listed bank issued a notice of an extraordinary general meeting to seek the shareholders’ approval to raise capital. The bank is exploring several options including reissuing shares, cross-listing and inviting a strategic investor.
“If new shares are issued to the strategic investor, this means the current shares will be diluted, when it comes to dividends for example,” said managing director of Baraka Capital Davis L Gathaara, who warned that the stock will drop meaning low earnings by shareholder.
Mr Gathaara, however, said the current rally in the bank’s stock price means that fewer shares can be issued to the strategic investor — which would protect current investors from registering big losses that come with dilution.
If the shareholders approve the plan, the lender will be going back to the market again, six years after raising $60 million through public listing.
“If the shareholders say we can go ahead and raise money, the question will be how much, when and how,” said Bank of Kigali communications manager Kenneth Agutamba.
The company has 672.2 million shares on issue on the RSE.
The lender has remained a big mover on the Rwanda bourse, with its highest the stock traded closing at Rwf300 ($0.35) on November 1, propping up the RSE index.
Investors watch the index to decide the markets to exit and enter, so weak indices drive investors away.
Seeking more capital comes at a time when the Rwandan economy is rebounding, with analysts projecting a pick-up in uptake of credit, which had slowed down in the first half of this year.
“The weak demand for credit was caused by the slowdown of economic activity and banks tightening the loan underwriting to check loan defaults,” said the National Bank of Rwanda.
The number of borrowers dropped from 299,498 in June 2016 to 261,871 in the same period this year.
The Rwanda economy is projected to grow at seven per cent for three straight years starting from next year, according to the International Monetary Fund.
However, Rwandan lenders are grappling with low capital levels compared with other markets, which analysts say limits their ability to finance major projects.
Sometimes they have to rely on foreign currency denominated debt to fund businesses. As a result, the cost of credit remains high, limiting the availability of long-term financing.
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