K-Rep Bank stake set to earn IFC Sh500m

The World Bank’s private sector lending arm, IFC, is set to earn nearly half a billion shillings from the impending sale of its stake in K-Rep Bank, nearly seven times the amount the lender invested in the micro-financier three years ago.

The International Finance Corporation (IFC) confirmed in an interview with the Business Daily that it is one of the shareholders of K-Rep Bank that is in negotiations to sell its entire 346,000 shares to investment company Centum, which has bid for a majority stake in the lender.

The Washington-based financier in 2011 invested $1 million (Sh86.7 million) in K-Rep Bank in return for a 15.18 per cent equity stake, valuing the small lender at $6.6 million (Sh571.1 million).

But Centum in July offered Sh2.5 billion to buy 65.9 per cent of K-Rep, effectively pricing the tier three bank at about Sh3.8 billion.

This means that IFC – the third largest owner of K-Rep – will receive Sh575 million from the disposal of its assets in the bank, making a handsome seven-fold return on investment.

“IFC is exiting K-Rep on amicable terms, and wish the bank’s management continued success and growth,” the financial institution said in a statement to the Business Daily.

READ: Centum bids for majority stake in K-Rep Bank

“K-Rep is well placed on its growth path, with a robust customer base amongst the lower and middle income segment. At this stage, IFC finds that its role has been fulfilled.”

K-Rep is ranked 28th in size out of Kenya’s 44 banks, with 230,000 deposit accounts and 47,000 loan accounts – giving it a market share of 1.5 per cent of the banking credit market in Kenya.

Centum currently owns 37,801 shares or 1.66 per cent of K-Rep. The additional shares it is seeking will make it the majority shareholder with a 67.54 per cent stake.

The attractive rate of return earned by IFC – annualised at 87.5 per cent – underlines the lucrative nature of Kenya’s micro-lending industry dominated by microfinance institutions, savings and credit co-operative societies (saccos) and shylocks.

“IFC’s investment in K-Rep Bank exhibits our pioneering efforts to support and strengthen commercially viable micro-lending institutions, a catalyst for job creation and private sector development among low-income groups,” it said in 2011.

Dutch lender Triodos Bank, which owns 14.48 per cent of K-Rep, said it would confirm exit from the lender at a later date.

“The acquisition process is expected to be completed within the next four months subject to regulations. Until that time we are not in the position to make any public statements,” Triodos said in a statement to the Business Daily.

The fresh valuations on K-Rep Bank came as the lender’s half-year net earnings tripled on the back of increased lending and growth in fees and commissions.

K-Rep Tuesday said net profit stood at Sh215.3 million in the six months to June compared to Sh69.6 million in the first half of 2013.

The micro lender’s net interest income more than doubled to Sh820 million from Sh300 million while transactional fees and commissions tripled to Sh308.4 million in the period.

K-Rep loaned out Sh376.8 million between March and June this year, mostly to its target market of investment groups (chamas) and small and micro enterprises. Its loan book closed at Sh10.1 billion as at June.

Community programme

It began operations in 1984 as a community programme dubbed Kenya Rural Enterprise Program (K-Rep) and later transformed into a commercial bank in 1999. It currently has 36 branches across Kenya.

K-Rep Group – an investment vehicle for the bank’s founders – with a 19.74 per cent holding, has also announced plans to acquire additional shares to increase its stake to 22 per cent.

Sources say the bank’s foreign institutional shareholders are set to sell off their stakes in the lender.

Those who stand to benefit from the Centum bid include the African Development Bank (21.98 per cent); South Shore Bank of Chicago (10.86 per cent) and Netherlands Development Finance Company with 6.59 per cent.