In June of 2022, Sidian Bank through its majority owner Centum Investment Company Plc welcomed a new suitor in Nigeria-based Pan-African lender Access Bank.
The transaction, which would have seen Sidian get a new owner and potentially fresh funding to anchor its growth, triggered a costly Sh444 million divorce that pushed the lender into losses.
Under an earlier agreement, Sidian had committed to offer its long-term financier--Investment Fund for Developing Countries (IFU)--the first right to buy shares of the bank on sale or get paid the millions.
But Access was not keen to partner with IFU, forcing Sidian to pay the financier Sh444 million despite the collapse of the deal between Centum and Access weeks later.
“In the eventuality of an acquisition, one of the DFIs who our long-term investor is had the right to convert their shareholding in the bank,” Sidian’s chief executive officer Chege Thumbi said.
“However, Access Bank did not want this conversion to happen and as such the DFI had to be paid so as not to convert its shares.” In a further blow to Sidian, the lender had to repay the Sh1.6 billion pending loan to IFU early.
The loan was to be used in a debt-equity swap and could have made IFU a significant shareholder—a position Access Bank rejected before bolting from the deal and eventually buying rival National Bank of Kenya.
Sidian Bank received a loan of Sh1.6 billion from IFU in March 2019 at an interest rate of 5.25 percent plus a six-month Libor rate per annum.
The loan had a tenure of seven years with a two-year grace period for payment of interest.
“The loan had an option to convert the outstanding loan into ordinary shares within five years of the first drawdown as well as an option for the bank to provide IFU with a minimum internal rate of return (IRR). The loan qualified as tier II capital being a subordinated loan,” Sidian Bank notes in its 2023 annual report
The payment sank Sidian into a net loss of Sh447.9 million in the year ended December compared to a net income of Sh395.3 the year before.
The development finance institution had the right to convert its loan facility with the bank into shares should Sidian become the subject of an acquisition. With Access Bank rejecting the exercise of pre-emptive rights, Sidian’s only other choice was to settle the facility and meet the termination fees represented by the minimum rate of return.
Lenders usually attach conditions to their credit facilities to protect their interests in the case of major developments that may harm the borrower’s ability to service the debt.
Some of these conditions include requiring a borrower to maintain a solid balance sheet by maintaining a set ratio of cash balances and other assets against total debt.
Others make the existing loans payable upon a change in control of the bank unless waived by the creditors.
At the end of December 2023, Sidian made the full payment of the Sh1.6 billion loan to IFU in addition to the early redemption costs.
Term lenders to Sidian include the East Africa Development Bank (EADB), EMF Microfinance Bank and the Netherlands Development Finance Company (FMO).
As at the end of December 2023, Sidian had outstanding borrowings of Sh8 billion to its lenders who also include Aqua for All, a Netherlands-based non-profit, Oikocredit, Triodos Investment Management and WaterEquity, a US-based non-profit.
In June 2022, Centum Investment Company Plc entered a binding agreement to sell its entire stake of 83.4 percent in Sidian to Access Bank for Sh4.3 billion. In January 2023, the parties announced the termination of the proposed transaction citing disagreement over the deal terms, including failure to renegotiate the buyout price.
Centum subsequently sold a 38.91 percent stake in Sidian to a consortium of firms, reducing its ownership in the bank to 44.5 percent. Pioneer General Insurance Limited, owned by UAE-based Abcon International LLC, Parkview Investments Limited and Medillon Trading FZE, took a 20 percent stake in the bank.
Wizpro Enterprises Limited acquired a 15 percent stake while Afram Limited bought a 3.91 percent interest in the bank.
The three buyers were estimated to have parted with Sh1.9 billion for their combined stake in the bank based on Centum’s carrying value of the lender as of March 31 last year.
After the stake purchase, the founders of Sidian and individual shareholders sold their entire stake in the bank to Pioneer General Insurance Limited, Pioneer Life Investments Limited, Wizpro Enterprises Limited, Afrah Limited and Telesec Africa Limited to once again tweak the shareholder structure of the bank.
In its latest annual report covering the year to December 2023, Sidian noted that K-Rep Group Limited, an investment vehicle founded by the lender as K-REP Bank, together with KWA Multi-Purpose Cooperative Limited and nine individuals sold 728,525 shares or a 16.57 percent stake in Sidian for Sh841.66 million.
Centum, through Bakki Holdco Limited, remains Sidian’s largest shareholder with a stake of 40.03 percent ahead of Pioneer General Insurance and Wizpro Enterprises who hold stakes of 24.8 and 18.27 percent respectively.
Afram Limited meanwhile holds a stake of 7.91 percent in the lender, with Telesec Africa holding the remaining 4.5 percent. Having failed to acquire Sidian, Access Bank scouted for other targets and recently announced it will buy a 100 percent stake in National Bank Kenya from KCB Group in a deal valued at about Sh13.2 billion.
Besides the exceptional costs relating to the failed sale to Access Bank, the performance of Sidian Bank was hurt by increased operational costs as the lender more than doubled its provisions for bad loans to Sh1.35 billion from Sh607.1 million a year prior.
The increased provisions mirror the bank’s deteriorated asset quality with gross non-performing loans rising to Sh4.4 billion from Sh2.8 billion previously.
Sidian closed 2023 with an asset base of Sh44.7 billion which consisted of a Sh23.2 billion loan book which was marginally down from Sh23.9 billion in 2022.
Customer deposits were higher in the year at Sh27.6 billion from Sh25.4 billion previously.
Despite the slowdown in loans and advances, Sidian’s operating income rose to Sh3.6 billion from Sh3.3 billion as net income from lending hit Sh2.2 billion from Sh1.7 billion representing gains from rising interest rates.
Non-interest income moved lower to Sh1.4 billion from Sh1.5 billion as fees and commissions on loans and advances contracted.
Despite slumping to a loss, Sidian Bank remains well capitalised with a core capital of Sh4.1 billion against a Sh1 billion regulatory requirement. The bank also meets all other statutory requirements including the core capital to total deposits liabilities ratio and the liquidity ratio.
