Kenya has earned $3.8 million from the sale of the Ugandan subsidiary of Imperial Bank shareholding to Tanzania’s Export Import Bank.
Exim Bank acquired 58.6 per cent stake of the embattled bank at $6.8 million. However, the Exim Bank’s purchase price is almost half the valuation price of $12.5 million estimated. FTI Consulting, one of the forensic firms appointed by Central Bank of Kenya, says Kenya’s share of this was paid to the Kenya Deposit Insurance Corporation.
The report by FTI Consulting showed that Imperial Bank hoped to raise $386 million by June next year, with $12.5 million expected from the sale of its 58.6 per cent stake in the Ugandan subsidiary. As at December 2014, Imperial Bank had invested $8.58 million in the Ugandan subsidiary when the unit had gross assets of $79 million.
The sale comes barely six months after the Bank of Uganda said that it is shopping around for a deep-pocketed solid financial institution that to appoint a new board to run the bank.
On Monday last week, Bank of Uganda Governor Prof Emmanuel Tumusiime Mutebile said the sale has effectively ended the regulator’s statutory management.
“Imperial Bank (Uganda) has changed its name to Exim Bank (Uganda). Therefore the Bank of Uganda has ended its statutory management in Imperial Bank (Uganda), now Exim Bank (Uganda) Ltd,” Prof Mutebile said.
The announcement of the sale was just eight days shy of the fifth month the bank would have been under statutory management. The Ugandan Banking Act doesn’t allow a commercial bank to be under statutory management for more than six months.
BoU’s commercial banking department is always looking out for potential risks and proactively advocating takeovers and liquidation whenever it feels depositors are exposed to imminent risks at a distressed financial institution.
“Even though we received a number of bids, we chose Exim Bank of Tanzania because of its track record in the banking industry and the pressing need to maintain shareholder cohesion in the business,” BoU’s director for commercial banking Benedict Sekabira said.
Exim Bank will now hold the majority stake of 58.60 per cent, while Mukwano Group, through Amazal Holdings will retain their 36.5 per cent share. The remaining 4.9 per cent is held by Export Finance Ltd.
This becomes the first acquisition of shares in a commercial bank initiated by the regulator, which could shape future mergers and acquisitions pursued in the industry under BoU oversight. However, the $3 million transfer to Kenya is considered inconsequential given that the large depositors, who are yet to be paid, are owed more than $330 million.
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In November, Kenya’s Central Bank proposed that the shareholders inject between $100 million and $200 million in shareholder equity injection, as part of the $500 million injection that will see the bank reopen. This, however, has not been implemented.
In December, CBK Governor Dr Patrick Njoroge said a decision on payment of the large depositors will be made later this month (March) but the Imperial Bank shareholders moved to court last month to stop such payments, arguing that allowing that will effectively liquidate the financial institution.
In mid-December last year, CBK authorised payments to small depositors, signalling there would no come-back from statutory management of the second-tier financial institution, while pegging the fate of close to 6,000 large institutional depositors at Imperial Bank and their $80 million in deposits to the outcome of negotiations.
The entry of Exim Bank into the Uganda market is expected to offer some relief to traders across the region, who will now be looking at the financing options the bank will offer within the two markets.
Exim Bank director Yogesh Manek said the investment now allowed the bank to establish its footprints in Uganda.
“There could not have been a better opportune time to make an entry into Uganda through such an alliance, when the EAC itself has been actively engaged in leveraging the capacity of all the countries in the region,” Mr Manek said.
The EastAfrican has learnt that Exim bank has already injected $11.7 million after the takeover, with another similar amount expected through a combination of $8.8 million in equity and $2.93 in credit advance. However, there are no timelines yet on the later capital injection.
Exim Bank chief executive Dinesh Arora said they will be looking at getting a market share of transactions especially those that involve Uganda and Tanzania.
“We want to capitalise on the opportunities within the regional trade but not limited to these two jurisdictions. We will explore the opportunities in cross-border trade between the two EAC nations,” Mr Arora said.
Exim Bank will now be looking at changing the fortunes of Imperial Bank Uganda, which had never recorded profits since its establishment in 2010.
In 2014, the bank declared a loss of $6.71 million. By the time it was placed under receivership, the bank had a loan book of $52 million, with $78 million in customer deposits.