Britam Holdings is set for a multi-billion-shilling outlay when it defends its 48.2 percent stake in fellow listed firm HF Group in the latter’s proposed rights issue that is pending regulatory approval.
The insurer spent more than Sh5.2 billion to acquire its stake in HF and later lent the mortgage firm Sh1 billion when the associate was mired in losses.
Britam had announced a plan in March 2021 to offload part of the HF stake to a strategic banking investor as part of a review of its investment portfolio, and in light of the associate's losses.
The plan was however shelved last year after HF turned around and returned to profitability.
HF is proposing to sell to shareholders three new shares for each held in the proposed offer, which it announced on Tuesday but whose pricing and timing is yet to be disclosed due to the pending regulatory approval.
The proceeds of the issue are primarily earmarked to boost HF’s capital ratios.
The bank currently has 384.6 million shares in issue, with the proposed rights issue set to raise this by 1.153 billion units. The lender has also attached a green shoe option (additional share sale) of up to 30 percent, potentially raising the total number of shares in the cash call to 1.5 billion units.
Britam’s current stake in the lender translates to 185.46 million shares, meaning that if the insurer was to take up its full allocation of the proposed rights, it would end up with an additional 556.38 million shares —or 723.3 million units if HF were to utilise the full green shoe option.
The HF share closed trading at Sh4.22 on Tuesday, valuing the additional shares that Britam would need to purchase in the rights offer to defend its stake at Sh2.35 billion. Britam’s chief executive Tom Gitogo said the insurer plans to take up its rights in the cash call.
Rights shares are however usually discounted compared to the prevailing market price as an incentive to investors to participate in an offer.
Britam has already spent a disclosed Sh5.26 billion since 2011 in HF related investments including open market share purchases and participation in a rights issue in 2015. The insurer also lent HF Sh1 billion for capital support.
Britam made its initial purchase of a 4.9 percent stake in HF in 2007, before raising this to 12.55 percent in December 2010. Another equity investment followed to raise the stake to 16.57 percent by June 29, 2011 but the cost of these three purchases was not disclosed.
The first transaction with a disclosed value was made on June 30, 2011, when Britam paid Sh516.8 million for additional shares to raise its HF stake to 20.88 percent.
The next purchase was of a 0.58 percent stake in December 2012 for Sh20 million to raise its holding to 21.46 percent.
In December 2014, Britam bought Equity Group’s 24.73 percent interest in HF for Sh2.78 billion, effectively doubling its exposure in the smaller lender to 46.04 percent and becoming the largest single shareholder of the bank.
HF then ran a rights issue in 2015, issuing 116.67 million shares priced at Sh30 each, at a rate of one for every two held. The offer raised Sh3.5 billion from investor bids worth Sh9 billion. The funds were earmarked for branch expansion and expansion of mortgage lending capacity.
That issue saw Britam spend Sh1.94 billion in defending its stake in the lender and also purchasing some additional rights from the market that helped raise its stake from 46.04 percent to 48.82 percent.
In addition to the equity investments, Britam also advanced HF a shareholder loan of Sh1 billion in 2020, boosting the lender’s capital and loans outside real estate.
