Investment firm Centum on Thursday announced plans to enter the lucrative financial services market with a multi-billion-shilling bid for a controlling stake in K-Rep Bank.
Centum said it had opened negotiations to acquire a 66 per cent stake in the bottom-tier bank whose value the transaction advisers estimated at Sh2.5 billion.
“We are pleased to announce the intended acquisition of an additional 66 per cent shareholding in K-Rep Bank from several existing shareholders,” the company said in a statement.
The transaction, if successful, will raise Centum’s stake in the lender to Sh67.54 per cent. Centum has been a minority shareholder in K-Rep since 2004 with a 1.66 per cent stake.
The press statement said Kabiru Kinyanjui, one of the bank’s founders, is also set to raise his stake alongside Centum, signalling that one of the foreign institutional investors may be exiting K-Rep.
Prof Kabiru’s investment vehicle K-Rep Group Limited is expected to raise its stake in the bank to 22 per cent, the statement said without disclosing its current position.
The twin transactions, if successful, will push local ownership of the bank to 89.54 per cent. K-Rep has a large number of foreign owners, including the International Finance Corporation (IFC) and South Shore Bank of Chicago.
The African Development Bank, Triodios (a Dutch non-governmental organisation), and the Netherlands development finance institution (FMO) also have stakes in the bank.
Centum’s bid for a controlling stake in K-Rep is the latest sign of how attractive small and medium-sized banks have become to institutional investors looking for growth opportunities in the medium and long term.
London-based Atlas Mara, founded by former Barclays Plc’s CEO Bob Diamond, has recently announced plans to enter the local banking market.
Centum expects to complete the transaction in the next four months and will own the stake through a non-operating holding company.
K-Rep was licensed as a commercial bank in 1999 and has registered steady growth over the years. The lender’s total assets were valued at Sh13.9 billion in March.
The bank’s net profit stood at Sh360 million in the year ended December 2013 compared to Sh196 million the previous year or an 83.6 per cent growth.
K-Rep has more than 200,000 retail, small, and medium-sized customers through its 36 branches.
Centum says the intended acquisition is in line with its strategy of growing a presence in the financial services market.
The investment firm has interests in insurance group UAP Holdings (13.8 per cent), AON Insurance Brokers (21.5 per cent), and microfinance firm Platinum Credit (35.6 per cent).
The impending deal underlines Centum’s increased acquisition appetite that has seen it invest billions of shillings in other ventures.
In recent months, Centum has been locked in a bidding war with British brothers for agricultural firm Rea Vipingo — a move that has seen the two rivals place higher bids before the company’s small shareholders.
Centum’s latest offer for Vipingo is Sh4.5 billion or Sh75 per share, five shillings higher than the Robinow brothers’ Sh70 per share and a potential additional payout of Sh15 per share if they sell the agriculture firm’s land at a profit in the future.
The promise to pay an additional Sh15 to the shareholder when the land is sold saw Centum file a complaint with the Capital Markets Authority seeking to disqualify the Robinows’ bid. The regulator is yet to decide the matter.
Vipingo’s key attraction is seen as the current and future value of its land holding of 69,500 acres in Kenya and Tanzania.
Market watchers, however, said Centum’s Sh4.5 billion valuation of Vipingo is still conservative given the rapid appreciation of land prices in the region.
Competitors have not ruled out upward revision of their offer. Centum initially placed a Sh50 per share bid in December, sparking a bidding war.
The investment firm already owns 296,500 shares in Vipingo amounting to a 0.49 per cent stake.
Centum’s net profit for the year ended March rose 21.7 per cent to Sh3 billion compared to Sh2.5 billion a year earlier, helped by unrealised gains in its real estate ventures.
The company said it made a 90 per cent paper gain to Sh3 billion from Sh1.6 billion on real estate projects such as Two Rivers. Its share price has more than doubled over the past one year to Sh47.
The capital gains have been critical for Centum’s shareholders who have had to forego dividends in line with the company’s policy of reinvesting its entire earnings.