Rights Issue puts Diamond Trust Bank on steady expansion plan

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Written by Steve Mbogo

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Mr. Mahmood Manji

December 10, 2007: Plans by Diamond Trust Bank Kenya to expand its banking services to Rwanda, Zanzibar and Burundi are now firmly on course following the success of a right issue that was raising money for expansion.

The just concluded rights issue was oversubscribed by 78 per cent with applications for Sh2.9 billion against the Sh1.6 billion that was required.

Last year, the bank raised Sh776 million in another rights issue which was oversubscribed by 197 per cent. The bank had offered some 23.3 million rights to shareholders at a discounted price of Sh70, a discount from the prevailing share price of Sh98.50 at the Nairobi Stock Exchange when the rights were announced in September.

A rights issue invites shareholders to buy new shares in a company proportional to their present shareholding and is aimed at raising additional operating capital.

It is contrasted with a bonus issue that gives shareholders new shares in a company, helping transfer money from reserves for use in operations. It is technically referred to as a stock dividend.

Diamond Trust Bank (DTB) chairman, Mahmood Manji, said most shareholders took up all their Rights and applied for more shares during the one share for every six held issue.

The bank’s board has approved full allotment of all applications, while additional shares were allotted on a basis of one share for every 3.6 shares held.

“With these new funds we will continue with expansion plans and explore additional opportunities to further strengthen our presence in East Africa through our affiliates in Uganda and Tanzania, as well as explore new investment opportunities in Rwanda and Burundi,” said Manji.

This year, the bank has already added five new branches to its network in Kenya with three in Nairobi and one each in Malindi and Kisii.

This month, the bank will open a branch in Thika to bring the total number of new branches to six in Kenya, increasing the network from five at the beginning of the year to eleven.

In Tanzania the bank plans to open a third branch in Dar es Salaam by the end of the year, thereby increasing its branch network to five.
In Uganda plans are at hand to open a third branch in Kampala later this month.

In 2008, the bank plans another Rights Issue but this time in Uganda to facilitate the expansion of its network in the country.

“Next year we have plans to open 17 new branches in the East African region, including one in Bungoma, Kitale, Eldoret and at the South Coast,” said Manji. “We are also planning to open a branch in Zanzibar and a second one in Arusha,”he added.

The bank says its expansion drive is in line with its mid-term strategy to upscale its operations throughout East Africa by rapidly expanding its presence in major commercial sectors across the three countries.

DTB is classified by the Central Bank of Kenya as one of the 13 “large” banks in Kenya out of the total 41 banks. It had assets worth Sh21 billion as of 30 December 2006, says the CBK.

The bank is also looking at diversifying its retail products offering and is considering getting into bank assurance, the concept of banks selling insurance products as soon as the legal provisions are put in place.

Diamond Trust Bank is an affiliate of the Aga Khan Fund for Economic Development (AKFED), the economic development arm of the Aga Khan Development Network.

Amongst the bank’s key shareholders are Habib Bank Limited (HBL), an AKFED subsidiary, and the International Finance Corporation, the private lending arm of the World Bank.

Banks quoted at the Nairobi Stock Exchange have opted for Rights Issues to increase their capital base in the face of increasing competition in the sector.

NIC Bank has also recently concluded a one billion shillings Rights Issue to fund its expansion into niche segments, with the acquisition of a stock broker house believed to be in an advanced stage.

Kenya Commercial Bank also raised money through the same channel two years ago.

Financing expansion and entry into new areas has also seen Barclays Bank launch a five billion shillings seven year bond in the market.
The first tranche of one billion shillings was listed at the NSE two weeks ago.

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Author: ismailimail

Independent, civil society media featuring Ismaili Muslim community, its achievements and humanitarian works.

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