Half year results to be released Thursday 18 August 2018

https://www.businessdail...3046-edqohyz/index.html

Investors who bought Chase Bank corporate bonds worth Sh4.8 billion have been dealt a big blow after it emerged that their only hope of recouping their money is tied to what will be left after Mauritian lender SBM Holdings carves out the good assets from the collapsed bank.
The Kenya Depositors Insurance Corporation (KDIC) chief executive, Mohamud Mohamud, in a phone interview Tuesday said the interests of depositors come first in the bank’s ongoing rescue while bondholders, like other creditors, play second fiddle.
“According to our law, those are creditors and so they will be catered for under the residue (Chase) Bank of 25 per cent. If you look at our law, we first pay the depositors then the creditors,” said Mr Mohamud.
The Central Bank of Kenya (CBK) and the KDIC struck a deal that is set to be completed this Friday in which SBM Bank will carve out 75 per cent of certain assets and liabilities from Chase Bank.
The KDIC’s position means that bondholders will have to wait for the remaining portion of Chase Bank to realise any money for them to be paid, a tough call given that some of the financial institutions under receivership have been in that state for 25 years.
Mr Mohamud said that it was not possible to set timelines for paying the bondholders since the KDIC will have to start making follow-ups on outstanding loans in the residual 25 per cent stake after the SBM deal.
The Capital Markets Authority (CMA), which cleared the Chase Bank bond issue in 2015, says that it has been engaging both the CBK and the KDIC but was yet to understand what will become of bondholders after Friday’s deal.
CMA chief executive Paul Muthaura Tuesday said that the CMA is not sure yet if the 2015 bond is part of what SBM will be carving out as its assets and liabilities or it will remain with what will be left of Chase Bank after the deal.
“As it stands, that has not been definitively communicated and that is what we are seeking very clear directions on,” said Mr Muthaura.
“There has been a focus by them to ensure they address all depositors’ issues first and foremost but we continue to engage with them to be very conscious of wider stakeholder considerations just as in any resolution.”
In mid-July, SBM Holdings Group CEO Andrew Bainbridge avoided discussing the bondholders’ fate, instead directing the Business Daily to seek information from the CBK and the KDIC.
On Tuesday, MTC Trust and Corporate Services, the firm responsible for implementation of the bond (trustee), held a closed-door meeting with the bondholders in Nairobi to decide on the next course of action.
Our attempt to get a comment from MTC Trust managing director Madabhushi Soundararajan on what transpired during the meeting did not materialise as he said he was busy with other matters. Bondholders of Imperial bank, also in receivership, and other potential lenders will be following this keenly as it could set a precedent on what will become of their Sh2 billion corporate bond.
The CMA had raised concerns in its June 2018 research paper on low uptake of capital markets products, stating that there is a high likelihood that bondholders will be treated as ordinary depositors upon resolution of Chase Bank and Imperial Bank.

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You look at this issue from the wrong perspective.

The question should be:

Why would a banking client patronize Imperial Bank, Chasebank, National Bank of Kenya et al and not KCB?

There is a relationship, a system, a feature, a need that such patrons are looking for and finding in these institutions. That is what KCB is venturing out to capture.

Just a thought. Just a thought.