Capital Markets

I&M targets Uganda entry in East Africa expansion plan

An I&M Bank branch in Nairobi.FILE
An I&M Bank branch in Nairobi.FILE 

I&M Bank will spend part of the Sh10 billion it is raising through a bond to open shop in Uganda. An information memorandum on the Sh10 billion medium-term note has cited Uganda as a key market for the bank’s regional expansion.

On Tuesday the lender announced a 32 per cent growth in after-tax profit to Sh3.7 billion in the nine months to September.

“The bank aims to continue growing its regional footprint, particularly in the East African region, and is actively pursuing the fulfillment of this strategy with a view to having a presence in Uganda,” says the information memorandum.

The bank, which listed this year on the Nairobi Securities Exchange (NSE), has a presence in Tanzania, Rwanda and Mauritius through joint ventures and majority stakes in other lenders.

I&M owns a 55.03 per cent stake in I&M Tanzania, an 80 per cent in I&M Rwanda and a 50 per cent stake in Bank One (Mauritius).

I&M did not mention specific banks it is targeting, timelines or how it plans to enter Uganda, but analysts said they expect the bank to continue with the practice of buying shares in incumbents.

Moses Waireri, head of research at Suntra Capital, said partnering with banks that are already up and running should ensure that I&M makes returns at minimal risk.

“Joint ventures are easier to set up and operate. Participants inject their expertise and returns are spread on a 50-50 basis, which is a fair way of doing business yet does not require a lot of capital,” said Mr Waireri.

Competition amongst local banks is also being fought on foreign soils.

“You need a bank that can operate with you in all your markets. If you are in Uganda and your bank is not, you might be tempted to pursue one that is,” said Johnson Nderi, advisory and corporate finance manager at ABC Capital.

I&M is going to raise the money in three tranches over a two-year period. It is planning to raise as much as Sh4 billion in the next two weeks in its first tranche.

The information memorandum says the bank is selling Sh3 billion worth of bonds, but should investor demand exceed the target, it can accept an additional Sh1 billion in the offer that opened on Monday and closes on December 6.

Listing on the NSE is expected to take place a month after the closing.

Allotment and allocation will take place on December 7 and the second Sh3 billion tranche will be offered in June 2014 and the Sh4 billion balance in 2015. Investors will have a choice of either buying fixed rate notes or floating rate notes.

The floating rate notes will have a 200 basis points rate above the 182-Day Treasury Bills while the fixed notes will have a 12.8 per cent rate.

The interest rate payable on the floating rate notes has been capped at 15 per cent while the minimum rate has been set at eight per cent annually.

Dyer and Blair Investment Bank is the lead arranger and sole placing agent for the offer.

The transaction advisors have set Sh1.5 billion as the minimum amount that needs to be raised for the issue to be declared a success.