Yes scooby. I'm aware of Tier II capital. However, in most cases to the best my knowledge from Barclays to CFC to I&M, most subordinate debt did not exceed 50% of core capital. I assumed this is a regulatory rule considering some banks disclose that requirement in their books. We had a brief conversation about this a while ago (refer to link below).

http://www.wazua.com/for...osts&t=6126&p=5

But if you're right then what stops other banks like Barclays issuing debt capital that exceeds equity? So equity is capitalised at 25b. HF raise about 175% its core capital. So could Barclays theoretically issue more than 15b in debt and add it to its tier II capital?

KCB had initially considered raising 15b from a bond if I'm not mistaken, why did they change there mind. Perhaps realistically they couldn't raise more than 11b and it seems they didn't what to issue it in tranches, possibly the primary reason for choosing equity to raise the 15b in one go.

Their objective was to raise capital? Perhaps HF's objective was to raise long term funds. What you think? I'm more concerned about the HF's finance costs based on the debt:equity ratio/leverage than why HF were allowed to issue so much debt?

Scooby and Scobidu...
If the company issued more debt and could actually raise capital using debt, then thats great coz debt financing is cheaper than equity financing thats why companies prefer debt finance over equity finance. The only thing that stop a company from being 100% debt financed is that there is a point in a capital structure model above which financial distress is imminent and its well over 50% debt but varies btw industries.

Scubidu,

I started to get worried about a decline in HF's net interest rate margin as from 2008. If you remember, that's when they started issuing mortgage packages to various companies at ridiculuosly low interest rates.

For instance, Nation Media staff were being granted loans at 7%. Here is the link that am referring to - http://www.housing.co.ke...=newsevents&sid=95.

So, one would realise that any funds allocated by HF to such schemes are actually loosing money assuming its cost of obtaining the funds is 8.5% (i.e. for this bond).

Regards

Scooby,

I thought the only reason that HF was providing those ultra low interest mortgages was because the employer was putting up the funds. HF was only administering the loans and collecting a fee for it.

@scoobs. So this is the problem i was trying to understand. Why were they allowed to raise so much in one go? Just to extend long term funding+small increase in capital.