Fidelity sells British fund Duet stake for Sh1.9 billion
Fidelity Commercial Bank chief executive Sultan Khimji. PHOTO | FILE
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Fidelity Commercial Bank has agreed to sell a significant equity stake to British private equity and asset management firm Duet Group for Sh1.9 billion.
Fidelity says the deal, which is subject to regulatory and other approvals, will see the bank’s capital base grow to over Sh3.8 billion.
Standard Investment Bank head of research Francis Mwangi said the banking sector as a whole has been operating on thinning ratios as it continues to experience growth, hence the moves by a number of lenders to seek additional capital injections.
Fidelity Commercial Bank has agreed to sell a significant equity stake to British private equity and asset management firm Duet Group for Sh1.9 billion.
The third-tier bank ranked number 28 in the industry said the deal, which is subject to regulatory and other approvals, will see the bank’s capital base grow to over Sh3.8 billion.
The lender’s managing director Sultan Khimji, however, declined to disclose the size of the stake being taken up by Duet saying further details will be announced later.
The capital injection will be made through the Duet East African Financial Holdings Fund.
Fidelity’s total capital to risk-weighted assets stood at 16.4 per cent against the mandatory 14.5 per cent at the end of the 2014 financial year, giving the lender a thin buffer of only 1.9 per cent on the Central Bank of Kenya (CBK) minimum requirement and putting a strain on the its lending business. Fidelity is yet to release the 2015 full-year financial results.
“The capital Injection is in exchange for an equity stake in the bank, and the Duet Group will get seats on the board of the bank,” said Mr Khimji.
“This primary capital increase will give us the ability to focus on larger transactions and increase our customer base, and none of the bank’s existing shareholders are exiting.”
With CBK freezing the issuance of new banking licences, equity sales will provide the most viable option for new entrants to the Kenyan banking sector, and could translate into a higher premium being demanded by the sellers for the stakes.
This also comes at a time when a number of banks in Kenya have been looking to raise capital as their buffer on key capital ratios dropped with the coming into effect on January 1, 2015 of new prudential guidelines issued by CBK.
Standard Investment Bank head of research Francis Mwangi said the banking sector as a whole has been operating on thinning ratios as it continues to experience growth, hence the moves by a number of lenders to seek additional capital injections.
KCB Group, Kenya’s largest bank by assets, is set to raise billions of shillings in the next two to three years to shore up its capital, with the lender’s total capital to total risk-weighted assets now standing at 15.4 per cent.
“The buffer is under pressure as growth catches up with the ratios of the banks.
“Those that are planning for additional growth in the short to medium term also need to raise capital today, otherwise they will slow down their growth in future,” said Mr Mwangi.
Equatorial Commercial Bank is lining up a second rights issue in three months to raise an additional Sh1 billion that will partly go to boosting capital reserves.
Consolidated Bank, which has been carrying a deficit in statutory capital requirements, is planning to raise Sh1.5 billion in a rights issue this year.
Duet Group manages more than $5.6 billion (Sh568 billion) of equity across its three business areas of hedge funds, private equity and real estate. The firm has two primary Africa offices in Cairo and Accra.
“We have been looking at Kenya for some time now and we see the Kenyan banking sector as an opportunity which will require growth capital as well as numerous consolidation opportunities in the sector,” said Duet Group chief executive officer Henry Gabay.
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