The National Social Security Fund (NSSF) has bought a 5.58 per cent stake in Equity Group from private equity firm Helios Investment Partners in a deal that has seen the latter complete its exit from the bank at a massive profit.
Equity chief executive James Mwangi told the Business Daily that Helios sold its remaining stake to the provident fund after ceding a total of 18.87 per cent shareholding to three other institutional investors.
The value of Helios’ stake in Equity grew exponentially during the seven years it was in the bank, forcing it to rely on deep-pocketed buyers for a smooth exit.
“Helios’s shares were seen as an overhang (a sizeable block of shares which, if released in the market in one go, would flood it and push prices downward). They have surprisingly managed to sell at a premium on the market (NSE) price,” Mr Mwangi said.
This is the first time the NSSF has invested in Equity, a move that marks an expansion of the provident fund’s interests in Kenya’s banking sector.
The fund, which is owned by workers but controlled by the government, is a significant shareholder in a number of lenders, including National Bank where it has a 48.1 per cent stake, KCB (6.17 per cent) and Housing Finance (2.25 per cent).
The NSSF’s acting managing trustee Anthony Omerikwa did not respond to our queries by the time of going to press.
The Equity deal is estimated to be worth at least Sh9.7 billion based on Sh47 per share — the lowest of the several sell-off prices by Helios.
This takes Helios’ earnings from the bank to a total of Sh44.1 billion, quadrupling the Sh11 billion it paid in December 2007 to acquire the 24.99 per stake.
The London-based PE firm also collected dividends totalling Sh6.5 billion from Equity, taking its total return on investment to 360.9 per cent or 24.3 per cent compounded annually.
This makes it one of the highest returns earned by a PE firm in Kenya, underlining the lucrative earnings by such funds, which typically have a seven-year investment horizon.
Mr Mwangi said that unlike Helios, the new institutional investors, including the NSSF, have a long-term commitment and are ready to raise their stake or provide additional equity financing to further grow the bank.
“We now have long-term investors willing to participate in future fundraising,” Mr Mwangi said.
“Right now we don’t need new money but if we keep growing at the current rate we could do a rights issue.”
The bank intends to venture into nine new African markets by 2024, a move that will raise its operations to a total of 15 countries in Africa.
The expansion plan is expected to necessitate the raising of new capital to fund the envisaged acquisitions or greenfield ventures.
Equity is currently in the process of acquiring 79 per cent of ProCredit, a bank in the Democratic Republic of Congo that it plans to pay for through a share swap.
Mr Mwangi said Norwegian sovereign wealth fund Norfund — which was the first to buy a 12.22 per cent stake in Equity from Helios — has expressed its intention to double its interest to 25 per cent.
Norfund and a consortium of partners concluded the purchase of the stake in April, becoming the single-largest shareholder in the bank.
Helios did not indicate the price at which Norfund bought the stake but the amount is estimated at over Sh22 billion based on Equity’s average market price of Sh50 in that month.
The PE firm in June sold a 2.44 per cent of its stake in the bank to NSSF Uganda for Sh4.5 billion or Sh50 for each of the 90.3 million shares.
A UK-based fund, Genesis Investment Management LLP, also bought a 4.21 per cent stake in Equity from Helios in the same month for Sh7.3 billion or Sh47 for each of the 155.8 million shares.
The new institutional investors are betting on Equity to maintain its strong performance that has seen it emerge as the second-largest bank in the country in terms of assets and profitability.
Founders of Equity have benefited from its stellar performance that has attracted a host of new investors, pushing up the share price and ultimately inflating shareholders’ paper wealth.
Equity’s Sh8.5 billion net profit in the half year ended June was more than 24 times the Sh344 million it made in the whole of 2005 when the then building society converted into a commercial bank.
The bank’s half-year net profit was only second to KCB’s Sh9.2 billion, with both lenders having benefited from a double-digit rise in interest income.
Equity, which revolutionised retail banking in Kenya with zero-balance accounts, has ten million customers and has amassed Sh400.9 billion in assets.
The stellar performance has attracted large institutional investors, including the new ones that helped Helios harvest its multi-billion-shilling investment.
Thousands of individual investors have also bought into the lender, sustaining a long-term price rally despite a massive expansion of its share units.
Equity’s market valuation has risen from Sh6.3 billion in 2006 to Sh144 billion currently, multiplying each shilling 22.8 times.
The bank now has 3.7 billion shares following a 10:1 split in 2009 and the creation of nearly 200 million shares in 2007 for issuance as bonus shares.