Chase Bank suitors to pay up to Sh20bn for majority stake
Chase Bank depositors outside a Nairobi branch after the lender was put under receivership by the CBK on April 7, 2016. PHOTO | FILE
What you need to know:
KCB, Centum and Equity on list of prospective buyers attracted by Chase Bank’s SME clientele.
The prospective investors should be prepared to pay up to Sh19.7 billion based on the mid-sized lender’s value.
Prospective investors eyeing a majority stake in troubled Chase Bank such as KCB Group and Centum should be prepared to pay up to Sh19.7 billion based on the mid-sized lender’s value.
A 2014 report by the private investment group Atlas Mara — headed by former Barclays Plc CEO Bob Diamond — shows that prospective buyers of majority stakes in Kenyan banks should expect to pay 3.5 times the book value of the lender.
Chase Bank had net assets (total shareholders’ funds) standing at Sh11.08 billion as at December 2015, meaning that by this criteria the distressed SME-focused lender could be worth Sh38.7 billion.
However, Chase Bank owners should expect to take sharp value erosion after a blitz of bad publicity including in the social media.
Atlas Mara made the report when it announced it was seeking to buy a Kenyan bank. The collapse of Dubai Bank, Imperial Bank and Chase Bank hands PE firm and other investors opportunity to enter East Africa’s largest economy.
Central Bank of Kenya (CBK) governor Patrick Njoroge last week said Chase Bank would reopen as soon as extra capital is pumped into the business by exiting shareholders or a new one.
“As soon as they (shareholders) put in that liquidity, the bank will be opened promptly,” Dr Njoroge said.
The CBK last Thursday shut down Chase Bank following a run on the bank fuelled by revelations of massive irregular insider lending.
Chase Bank had Sh94.27 billion in customer deposits and a loan book of Sh103.3 billion as at December 2015.
According to Citi, Kenyan lenders are ideal takeover targets because they have the ideal return on assets, cost of capital and price-to-earnings ratios.
But the continued uncertainty over the future of Chase Bank may also lead to erosion of the lender’s value.
The bank’s prized asset is its control of SME lending, with innovative products such as LPO financing, invoice discounting, supply chain financing and unsecured loans for small businesses.
Imperial Bank’s 58.6 per cent stake held in the Kampala subsidiary was valued at Sh5.1 billion going by Atlas Mara’s formula.
However, it was sold for $6.788 million (Sh678.8 million) to Exim Bank Tanzania, meaning the lender’s value was wiped out by allegations of parallel lending at the parent Kenyan bank to the tune of Sh34 billion.
The list of suitors eyeing control of Chase Bank also includes an unnamed Qatari bank, Equity Bank, CBA, Centum and I&M Bank.
Chase Bank’s shareholder value may be cut by allegations of book cooking which saw Deloitte issue a qualified opinion of the lender’s 2015 financial statements.
The CBK governor said Sh7.9 billion was irregularly lent to an unnamed Chase Bank director although owners claim the investments were made on behalf of the bank.
There are also doubts as to whether an additional Sh8.7 billion can be recovered given that large segments of it were not being serviced or lacked documentation, the banking sector regulator said.
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