Commercial Bank of Africa (CBA) has made a Sh1.4 billion cash offer to buy out Jamii Bora Bank, expanding the Kenyatta family’s business empire which transcends banking, dairy, real estate, hospitality and manufacturing sectors.
The Jamii Bora acquisition bid comes only weeks after CBA announced a reverse takeover of NIC Group, which is listed on the Nairobi Securities Exchange (NSE).
The combined CBA, NIC and Jamii Bora business will rank as Kenya’s third-largest banking entity after KCB and Equity.
The three will have total assets of about Sh457 billion, rivalling KCB and Equity, which have assets of Sh684.1 billion and Sh560.3 billion respectively.
CBA is majority-owned by the wider Kenyatta family, whose members include President Uhuru Kenyatta.
People familiar with the underway transaction say CBA will hold Jamii Bora privately and also own a stake in the merged operations of CBA and NIC whose shares will be listed on the NSE.
CBA’s microcredit business, M-Shwari, is to be spun off to Jamii Bora while CBA/NIC will focus on their mainstay corporate and SME banking.
“Due diligence and negotiations have been ongoing since last year and the deal is likely to close in a matter of weeks,” said a source who is involved in the deal but requested anonymity to speak candidly.
CBA Group chief executive Isaac Awuondo declined to comment on the matter.
The Jamii Bora chief executive, Sam Kimani, announced his resignation from the lender on Wednesday and was succeeded by his deputy, Tim Kabiru, in an acting capacity.
At Sh1.4 billion, the buyout offer is a steep discount of nearly 60 per cent to Jamii Bora’s last published book value of Sh3.4 billion in March.
The lender has not released its half-year and third-quarter financials, having received an exemption from the Central Bank of Kenya (CBK) to facilitate the ongoing buyout.
Jamii Bora’s shareholders could get more cash in addition to the purchase price, conditional on CBA establishing that the lender is on a firm financial footing post-transaction.
“Beyond the Sh1.4 billion, there is a further consideration based on the bank’s future performance,” the source said.
The additional payout, if it materialises, will narrow the current gap between the bank’s net assets and the initial compensation.
Among the shareholders to be bought out are the ex-CEO, Mr Kimani, and his successor, Mr Kabiru, who will get an estimated combined payout of Sh238 million through their investment vehicle, Asterisk Holdings, which has a 17 per cent stake in the lender.
The duo invested in Jamii Bora and took executive positions in the bank in 2011 following their departure from KCB Group, which implemented a major restructuring of its executive team at the time.
Private equity firm Catalyst Principal Partners will get Sh224 million for its 16 per cent equity while Shorecap Limited will receive Sh238 million on its 17 per cent equity.
Jamii Bora Scandinavia will be paid Sh224 million for its 16 per cent stake. The bank also has hundreds of individual investors.
It was not immediately clear how many of these investors will break even at the initial Sh1.4 billion aggregate buyout price.
CBA was able to make an offer below book value because it expects to inject additional capital into Jamii Bora which, for instance, has suffered liquidity shortfalls.
The lender’s liquidity ratio stood at negative 11.1 per cent in March, far short of the minimum statutory requirement of 20 per cent. This means that its ability to meet short-term obligations is significantly limited.
The entry of the deep-pocketed CBA is expected to change the fortunes of Jamii Bora, which has conducted several rounds of capital-raising in recent years to grow in the competitive SME lending segment.
Implementation of interest rate controls has hurt most of the medium and small banks such as Jamii Bora, which relied on wholesale deposits to lend to individuals and SMEs at rates relatively higher than the current maximum of 13 per cent.
Jamii Bora narrowed its net losses to Sh51.2 million in the first quarter ended March compared to Sh96.2 million a year earlier as interest income plunged 36 per cent to Sh264.9 million.
Its loan book declined 15.3 per cent to Sh7.9 billion.
The transactions initiated by CBA mark a flurry of deal-making in the banking sector where institutions have lost the large premiums of up to three times the book value they commanded prior to the interest rate caps, encouraging opportunistic buyers to step in with rescue and growth capital injections.
Private equity firms AfricInvest and Catalyst Principal Partners, for instance, last month acquired a 24.2 per cent stake in Prime Bank for $50 million (Sh5.1 billion) at book value.