Money Markets

Equatorial Bank in talks for sale of Sh1.3bn stake

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Equatorial Commercial Bank (ECB) executive director Robert Shibutse during an interview with the Business Daily.  File

Equatorial Commercial Bank (ECB) executive director Robert Shibutse during an interview with the Business Daily. File 



Posted  Sunday, April 28  2013 at  15:29

In Summary

  • The bank is seeking to cut the ownership of its majority shareholders to below the maximum regulatory threshold of 25 per cent.
  • The lender said in an interview it hopes to have closed the transaction by end of September.
  • ECB has turned to other partners after the collapse of talks with strategic investors with whom it had reached an agreement last year.

Equatorial Commercial Bank has opened talks with private equity firms for the sale of a Sh1.3 billion stake as it seeks to cut the ownership of its majority shareholders to below the maximum regulatory threshold of 25 per cent.

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The lender said in an interview it hopes to have closed the transaction by end of September, and has earmarked the cash for financing of its expansion plans.

ECB has turned to other partners after the collapse of talks with strategic investors with whom it had reached an agreement last year.

The failed conclusion of the deal saw ECB close the year below Central bank of Kenya’s minimum capital requirement, forcing it to make a shareholders’ cash call of Sh500 million.

“We are engaging other parties to try and get growth capital because the rights issue was for compliance capital. We want to ensure our core capital is not less than Sh2 billion,” said Robert Shibutse, executive director of the bank.

ECB had stated in an earlier interview that the new capital was to remain in the company, implying that they were not selling a stake but rather creating more shares to dilute the position of the majority shareholder.

Mr Shibutse said the lender had returned to profit in the first quarter after reporting an after-tax loss of Sh481 million in December. Only four banks of the 43 operating in the country reported losses last year, the others being Ecobank, United Bank of Africa and Dubai Bank.

The loss ate into the bank’s core capital, further eroding the core capital base. The deal with the initial strategic investors who were from United Kingdom, Mauritius and Malaysia had already been approved by the Central Bank, with a January 15 deadline.

The cash was to see the bank then with a core capital of Sh547 million meet the minimum requirement and leave it with extra funds to implement its growth plans.

With the lapse of the deadline, the bank, which is associated with the Merali family, opted to float a Sh500 million rights issue which closed in February.

The issue, however, pushed the stake of its majority owner beyond the legal maximum threshold by a single shareholder of 25 per cent.

“We were not just only after capital but also were trying to improve our ownership structure. We have up to 2015 to have reduced to below the 25 per cent ownership by our majority shareholders,” said Mr Shibutse.

ECB will also be expanding its board as it ushers in a new managing director following the retirement of Peter Harris last year.

Mr Harris opted not to renew his contract after turning 64 years having served the bank for four years during which period ECB merged its operations with Southern Credit Bank in 2010.

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