Companies

City Trust warns of share price risk in I&M merger

I&M Bank could directly list at the Nairobi bourse if its shareholders and those of City Trust fail to approve a merger, a move analysts say will hurt the investment firm’s shares at the stock market.

The bank wants to use the merger to list on the Nairobi Securities Exchange on June 11, riding on City Trust which is already trading at the stock market.

For the deal to succeed, City Trust shareholders must approve it at their extraordinary general meeting to be held on February 20 and at least 90 per cent of I&M Bank investors must accept to swap their shares with those of the investment firm.

Reverse takeover

Under the merger, shareholders will be offered 13.62 shares in the investment firm for every share they hold in the bank in what will see the investors granted 363,722,034 new City Trust shares in a reverse takeover.

READ: I&M owners earn Sh29bn in City Trust shares deal

“Failure to conclude this transaction may result in I&M Bank applying for direct listing on the NSE,” said City Trust on risks associated with the proposed merger in a shareholders' circular.

“In which case, CTL shareholders could potentially be faced with a decline in share price and value of their investment in CTL shares over a period of time.”

On paper, the deal has been promoted as if the smaller City Trust is buying I&M Bank, but in reality it’s the bank that is acquiring the investment firm in a share swap deal worth Sh29 billion.

Owners of the mid-tier lender will emerge the biggest beneficiaries of the deal given that they will account for 92.7 per of the holding company. The bank is betting on enlisting at the bourse to raise capital through corporate bonds and rights issues.

READ: I&M directors new billionaires at Nairobi bourse

City Trust owns a 7.28 per cent stake in I&M, which accounts for 95 per cent of its income. It will own a 7.3 per cent stake of the holding company.

The investment firm’s share price has gained 80 per cent in the past one year to trade at Sh452, helped by the announcement of the proposed transaction.

Analysts say that City Trust’s shares face erosion should the deal collapse.