Equity to cede 2.3pc stake in Congolese bank acquisition bid

Tuesday June 02 2015

Three European investors are likely to own up to 2.3 per cent of Equity Bank Group in exchange for a majority stake in Congolese lender ProCredit Bank, an analysis of the transaction, which is underway, shows.

Equity on Tuesday last week announced that three institutional investors — German firm ProCredit, Belgian development finance institution BIO and Dutch fund DOEN — that respectively own 61 per cent, six per cent and 12 per cent of the Congo bank — are willing to sell their stake to the Kenyan lender.

Standard Investment Bank (SIB) analysts reckon that the acquisition values the Democratic Republic of Congo (DRC) bank at an upper limit of Sh4.3 billion.

“Using Equity Bank’s three month average share price of Sh49.90, a full stock acquisition would result in an issuance of between 70.03 million and 85.03 million shares or between 1.9 per cent and 2.3 per cent of its total issued shares,” says SIB in a research note to its clients.

“Based on this range, ProCredit DRC would be valued at between $36.4 million (Sh3.5 billion) and $44.2 million (Sh4.3 billion),” it added.

Private equity fund Helios EB Partners is currently Equity Bank’s biggest owner, controlling slightly more than 12.22 per cent of the lender.


Sovereign fund Norfund and a group of private financiers, Norfinance, together control about 12.22 per cent of the lender.

READ: Equity Bank to buy 79pc stake in DR Congo bank for $60m

Financial group Britam, Equity Bank employees and chief executive James Mwangi complete the list of the top five owners of the bank.

SIB says ABSA’s 2012 acquisition of Barclays Africa at 1.7 times its book price is a benchmark that can be used to estimate valuation of the Equity-ProCredit deal.

The acquisition is partly being financed by share swaps though the exact number of shares and the deal price were not disclosed when Equity made the plan public last week.

Equity has made clear its preference for financing acquisitions through issuance of own stock and recently created 411.4 million new shares with a par value of Sh205.7 million for acquisitions.

Based on the current share price of Sh47.5, the new shares are worth Sh19.5 billion.

ProCredit is exiting DRC to focus on eastern European markets.

German fund KfW and the International Finance Corporation (IFC), which have a 12 per cent and nine per cent stake respectively in ProCredit Bank Congo, will remain as co-investors with Equity.

Completion of the deal is subject to regulatory approval in both Kenya and DRC, but the estimated completion date is August.

“Upon completion of the transaction it remains unclear how long ProCredit Holdings AG & Co. will retain its equity holding in Equity Bank,” said SIB. “This is given its continued divesture out of Africa and minimal influence in the running of operations as a minority.”

Mr Mwangi on Tuesday last week said the deal was the first instalment of an ambitious pan-African expansion drive that would see it venture into at least nine more countries.

READ: Equity Bank builds $227m war chest for Africa buyouts

The CEO, who recently said he intends to lead Equity for 10 more years, said they are betting on strong credit and country risk management to realise the opportunities in DRC.

Mineral-rich DRC has a population of about 70 million people, with the uptake of banking services standing at a paltry four per cent, giving Equity significant growth headroom.

“After this we will expand into southern African markets as we seek a presence in 15 countries in 10 years,” said Mr Mwangi, adding that the target markets include Zimbabwe, Botswana and Malawi.

ProCredit Bank Congo, which has been in operation since 2005, last year posted a net profit of Sh252 million, has total assets of Sh20.6 billion and Sh2.5 billion in shareholder funds.