Suntra Investment Bank customer care assistants serve clients at the company’s offices in Nairobi. Fusion Capital has put on hold plans to buy a 55 per cent stake in the firm. Photo/File
A UK-based private equity fund, Fusion Capital, has put on hold plans to acquire a controlling stake in Suntra Investment Bank, slowing down the stockbrokerage firm’s recapitalisation plans.
Fusion Capital intended to increase its shareholding in Suntra to 55 per cent from the current 9.73 per cent, in a deal estimated to have been worth Sh688 million at the time.
Suntra chief operations officer Erustus Kirongothi said that the transaction hit a snag after the financial sector regulator in Guernsey Island halted the transfer of funds belonging to the private equity fund.
“The money was to come from one of the funds in Guernsey but the authorities there have not approved release of the cash,” Mr Kirongothi told the Business Daily.
In addition to increasing Suntra’s capital base, a bigger stake by Fusion Capital would have given the investment bank access to a wider pool of funds.
With its capital base currently standing at Sh108 million, Suntra has been forced to apply for a downgrading of its trading licence from that of an investment bank to a stockbroker.
New regulations by the Capital Markets Authority (CMA) increased the minimum capital requirement for investment banks to Sh250 million effective last year, while stockbrokers are supposed to have minimum capital of at least Sh50 million. The firm will change its name to Suntra Capital.
“We decided to apply for a brokerage licence because we could still earn the bulk of our income from commissions. It is challenging to make a return on the investment banking licence when there is little activity,” said Mr Kirongothi.
Suntra had planned to create new shares to accommodate Fusion Capital. The investment bank’s stock was trading at about Sh100 each over at the counter segment, putting the company’s market value at Sh1.25 billion based on its 12.5 million issued shares.
“This (acquisition by Fusion) would have been good, especially in attracting foreign clients,” he said.
Fusion Capital’s increased stake in Suntra was also meant to give it a war chest to finance a roll-out of new products with the expected opening of a futures market, real estate investment trusts and the introduction of the growth and enterprise market segment at the Nairobi Securities Exchange.
The new segment for listing small and mid-size enterprises is expected to be ready by the end of the month, according to the CMA.
A real estate investment trusts market will give investors, especially small ones, an entry into the booming property market.
The rise in minimum capital requirements for investment banks were meant to strengthen the institutions and brokers against low seasons that eat into their profits.
