Equity Group books Sh907m gain on DRC bank buyout

Equity Group #ticker:EQTY has booked a Sh906.57 million bargain purchase gain on completion of acquisition of a majority stake in the Congolese lender, Banque Commerciale Du Congo (BCDC) in August.

The lender has disclosed the gain in its latest financial statements covering nine months to September, in which it posted a 14.5 percent fall in net profit to Sh14.8 billion. The buyout of BCDC was completed on August 7 with Equity paying $95 million (Sh10.35 billion) to acquire a 66.53 percent stake in the lender from the family of George Arthur Forrest.

Equity bought the stake at a discount given that the initial cost arrived at in September last year was Sh11.44 billion ($105 million).

“The purchase gain relates to the BCDC transaction. When we were completing the transaction we said the environment had changed and we were given a discount of $10 million (Sh1 billion),” Equity Group’s chief executive James Mwangi said in reference to the impact of the Covid-19 pandemic.

Bargain purchase gain is disclosed as exceptional income, adding to the bottom-line.

In accounting terms, a bargain purchase gain arises when assets of a particular entity are acquired by another entity for a cost that is less than what the properties can fetch when sold at market prices.

Equity is now the controlling shareholder in BCDC, followed by the government of the Democratic Republic of Congo with a 25.53 per cent while the remaining 7.94 per cent is held by other minority shareholders.

The acquisition allowed Equity to start merging BCDC with its other subsidiary in that market, Equity Bank Congo S.A.

The merged entity will become the second-largest commercial bank in the Central Africa country, the Kenyan banking multinational said.

Equity had last year increased its shareholding in Equity Bank Congo to 93.6 per cent by acquiring an additional 7.6 per cent of shares held by the German State-owned development bank, KfW.