Equity Bank plans to expand to ten countries in the next five years at a cost of Sh200 billion, it announced Tuesday.
The lender said it had already signed loan agreements for Sh36 billion ($400 million)—and Tuesday created additional shares worth Sh20 billion to be used in the acquisition process.
The bank which currently operates in five countries said it will raise the remaining Sh140 billion through a rights issues or a secondary initial public offering.
Equity plans to enter Ethiopia, Burundi and the Democratic Republic of Congo in the next two years before expanding southwards to Mozambique, Malawi, Zambia and Zimbabwe.
The bank will turn to West Africa after five years, eyeing Nigeria, Ghana and Cameroon.
“In some countries it is difficult to start from scratch because they are too big so we will enter by acquiring a medium-tier bank and upscale it. For acquisition we will give shares in Equity Bank instead of cash which is why we are asking you to create new shares,” said the bank’s chief executive James Mwangi.
Mr Mwangi said the bank will make acquisitions in three countries with the rest being new investments.
The shareholders, however, capped the cash to be spent in each at Sh9 billion ($100 million).
Equity currently operates in Kenya, Uganda, Tanzania, Rwanda and South Sudan with Uganda being the only market it did not start from scratch. All the subsidiaries recorded profits last year, the first time in the last five years.
Acquisitions will be funded by long term borrowings from international development companies including the International Finance Corporation and the Africa Investment Bank. Its long-term borrowings stood at Sh25 billion at the end of last year, up from Sh719 million the previous year.
Management said Burundi had been urging it to enter the country, which is the only eastern African state that it has no presence in.
The mineral-rich Kiswahili speaking Democratic Republic of Congo was said to be attractive due to its high population, estimated at 84 million with a low financial inclusion of 13 per cent.
“There is a strong belief that Ethiopia will sign the World Trade Organisation agreement which will make it open its market to private companies,” said Mr Mwangi.
The Ethiopian government has locked out private investors from its financial sector through law.
Equity said it hopes to ride on agency banking, on which several countries have consulted them on, to grow in the new markets, keeping a lid on its expenses.
Equity Bank said it factored in proximity, common language, countries that would have high impact on its financial performance and regional integration in selecting the investment destinations.
The lender estimates its shareholders will be diluted 10 per cent with the creation of the new shares. Equity Bank shares Tuesday traded at Sh52 per unit compared to Sh51.50 in the previous trading session.
It became the most profitable lender in the country this year with an after tax profit of Sh17.1 billion.
In a financial disclosure, World Bank’s private investment arm, IFC said it had set aside Sh7.2 billion to participate in a private placement in a listed regional bank whose description fits Equity Bank. Equity said it had been working closely with IFC in risk management.