South Africa's Capitec to issue $110 million in new shares

South African retail lender Capitec Bank said it would raise up to $110 million by issuing new shares to fund its expansion and boost capital ahead of new global banking requirements.

Capitec, a small but fast-growing retail bank, has been chipping away at the market share of South Africa's "big four" banks by offering lower fees and keeping its branches open later.

The bank said in a statement on Monday it would issue up to 4.6 million new shares, representing nearly 5 percent of its current stock in issue. Shares of the bank tumbled more than 4 percent on the news.

"They are growing so rapidly," said Harry Botha, an investment analyst at Avior Research.

"It will be dilutionary, but longer term, (the issuance) is the right thing to do because they need capital to expand."

The bank expects to raise as much as 850 million rand through the issuance, said Finance Director Andre du Plessis, adding that the extra capital could help with stricter global banking requirements.

"We don't know what the rules are. All banks are waiting for the outcome. When the rules are finalised everyone will have to go the market to raise money," du Plessis told Reuters in a telephone interview.

"We don't want to be in the washing machine with all the others."

South African banks are relatively well capitalised, but the Reserve Bank expects they will struggle to meet some of the new global benchmarks under discussion, such as requirements on short-term liquid assets.

Absa, the South African bank majority-owned by Barclays, has said it will need $43 million this year to boost its liquidity buffer.

South Africa's other major banks include Standard Bank, FirstRand Ltd and Nedbank Group.

Capitec said some of the proceeds would go into increasing its presence across South Africa. The bank plans to have a total of 510 branches by the end of the year, up from 490 now.

Capitec's target is to open 50 new branches annually at the cost of about 1.2 million rand each, du Plessis said.

"On a profit basis, we normally break even within six months of opening a branch," he said from bank's Stellenbosch offices.

Bank of America's Merrill Lynch unit is acting as sole lead manager and bookrunner for the placing.

Capitec said in January it had raised about 1.05 billion rand in a cash call that had represented 10 percent of the company's issued shares.

Capitec's shares have gained more than 9 percent in the year-to-date. They were down 3.7 percent at 183 rand at 1306 GMT. Johannesburg's broad All-Share index was down 1.3 percent.


Credits: Helen Nyambura-Mwaura - Reuters

This article was originally posted on Sustainable Development Africa Platform

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