KCB spends Sh25bn on DRC bank buyThursday May 04 2023
KCB Group paid Sh25.1 billion to acquire an 85 percent stake in DRC lender, Trust Merchant Bank (TMB), in a deal that has given it a foothold in the vast mineral-endowed central African country.
The lender has for the first time disclosed the value of the deal in the latest annual report, which shows that the amount includes a goodwill (premium) of Sh3.07 billion in the transaction that values the DRC bank at Sh29.54 billion.
KCB, which completed the purchase last December, had previously said the deal would be priced at 1.49 times the book value or net assets of the DRC lender—working out to nearly Sh17.9 billion as of December 2021 when TMB net assets were Sh14.15 billion.
Read: KCB Group makes U-turn on full buyout of DRC bank
The lender says it paid the goodwill because of the future cash flows expected from the deal given the prospects in the DRC market and also the loyal customer base that TMB had built over its 18-year operational history.
“The goodwill is attributable to the future prospects of operating in the market in DRC, which has great potential given that the majority of the population is unbanked and the need for taking the banking services to the people with leverage on the Group's presence across the East African Community (EAC). The bank also has a loyal customer base,” says KCB.
The lender discloses that TMB net assets had hit Sh25.93 billion at the time of sealing the deal last December, up from Sh14.15 billion a year earlier, leading to increased price to factor in metrics such as growth in core deposits, loan book and cash and bank balances.
TMB cash and cash equivalents for instance rose to Sh129.15 billion from the previous year’s Sh104.38 billion, giving KCB a net cash inflow of Sh104 billion when it completed the acquisition.
KCB chief executive Paul Russo told the Business Daily the TMB acquisition has given the group significant capacity to accelerate its growth ambitions including tapping into the trade opportunities that come with the admission of DRC into the EAC.
“KCB Group can now unlock the large trade opportunities that exist within the various trade routes cutting across from the Indian to the Atlantic Ocean, teeing us up very well to deliver a significant increase in the contribution made by subsidiaries outside of Kenya,” said Mr Russo.
The lender said TMB contributed Sh2.32 billion in revenue in the month of December and a pre-tax loss of Sh65 million.
Read: KCB completes acquisition of DRC lender for Sh15 billion
However, the lender estimates that revenues would have been Sh15.29 billion and a pre-tax profit of Sh3.04 billion had the acquisition taken place at the start of last year.
This means the DRC unit will this year rival BPR Bank Rwanda on profitability given that the Rwandan unit was KCB’s most profitable subsidiary outside Kenya with a pretax profit of Sh3.69 billion.
KCB says it has the preference right of acquiring the remaining 15 percent stake within 60 days after December 15 next year.