Investment firm City Trust is set to apply to join the main market of the Nairobi bourse following its merger with I&M Bank that has given the lender an indirect listing at the Nairobi Securities Exchange (NSE).
The investment firm is listed on the alternative market segment of the NSE and its deal with I&M Bank will help it meet the minimum capital threshold required for listing on the main stocks market.
City Trust on Monday said it will become the holding company of I&M Bank in a transaction that will see the bank’s shareholders exchange their shares for those of City Trust in what has been described as a reverse takeover.
This is where a private company’s shareholders exchange their shares for those of a public company, making the non-listed company a publicly-traded one. In this case, this will save I&M Bank the trouble of going through an initial public offer (IPO) process as well as regulatory review and approval scrutiny.
“This transaction is a reverse takeover. I&M investors will have the controlling stake in the holding company,” said a director of City Trust who did not want to be named before details of the deal are made public to investors on January 21.
“We will be applying for listing on the NSE main investment market once the transaction is complete. For City Trust investors, the transaction will unlock the value of their stocks by boosting their liquidity at the NSE where shareholders of I&M Bank will also be able to trade.”
City Trust had a paid share capital of Sh28.6 million in July, which was below the threshold of Sh50 million required to list on the main investment segment of the NSE. The combined unit will have a share capital in excess of Sh2.8 billion.
The bank’s assets stood at Sh108 billion in 2011 compared to City Trust’s Sh334 million. The investment firm returned a profit of Sh48.4 million in the year to July compared to the lender’s Sh3.4 billion in the year to December 2011.
City Trust had a market value of Sh2.2 billion Thursday compared to the bank’s valuation of Sh12.2 billion in 2010. So far, the deal has been promoted as if the smaller City Trust is buying I&M Bank based on shareholder notices.
In October last year, City Trust warned investors that it was about to close a deal that would have significant impact on its share price, which yesterday hit its peak at Sh390 compared to Friday’s Sh358. The share has gained 65 per cent over the past year.
“The proposed acquisition of the bank’s shares has taken much longer time than we had envisioned. Rest assured that shareholders’ interests are well looked after in this matter,” said City Trust ahead of its November 20 annual general meeting.
City Trust owns 7.3 per cent of I&M Bank, whose dividends have been the primary source of the investment firm’s income.
Other shareholders of the bank include Minard Holdings (15.6 per cent), Germany’s sovereign fund DEG (10.8 per cent) and French’s Proparco (8.9 per cent), according to the bank’s 2011 annual report. These are expected to be the key investors in City Trust and the deal paves way for them to exit the bank through the NSE.
In 2007, DEG & Proparco invested an estimated $4.5 million to acquire a combined 11.96 per cent shareholding in I&M Bank and grew their combined stake to 19.7 per cent after injecting Sh1.2 billion in the bank.