Why Centum terminated Sidian Bank saleMonday January 16 2023
Centum Investment Company Plc asked to be paid Sh4.3 billion at once for its 83.4 percent stake in Sidian Bank, a demand that was not met by Nigeria’s Access Bank and led to the collapse of the deal.
The parties initiated talks in 2021, culminating in the signing of a share purchase agreement in June 2022.
Centum’s chief executive James Mworia told Business Daily that the company was to be paid Sh1.7 billion after two years from September 2022 when the transaction was originally expected to have been concluded.
READ: Centum sells Sidian Bank for Sh4.3bn to Nigerian lender
Securing approvals from authorities in Kenya and Nigeria however took longer than anticipated and went beyond the long stop date of December 5, 2022 –the time when the parties could agree to extend the deadline on the same or revised terms.
Mr Mworia said Centum decided to ask to be paid the Sh4.3 billion all at once, adding that the company would have suffered a significant economic loss if it were to accept to be paid the balance of Sh1.7 billion at what would have been a more delayed date stretching into late 2024.
“What made sense in 2021 is not what made sense in late 2022 and now early 2023,” Mr Mworia said, noting that a deferred payment would have denied the company an opportunity to deploy the cash in assets such as government bonds that are currently yielding upwards of 14 percent.
He said that Sidian Bank’s improved profitability and major changes in the macroeconomic environment required that the compensation be made at once in the absence of an upward adjustment of the price.
“When we agreed to the deal, the shilling was stronger and inflation was lower,” Mr Mworia said, adding that Sidian Bank has also become more profitable since adopting risk-based lending.
“If we proceeded with the transaction on the initial terms, we would have been surrendering an appreciating asset for a depreciating asset [cash],” he said, noting that the collapsed deal was denominated in Kenya Shillings.
The local currency has depreciated 12 percent to trade at 124 units to the dollar currently from 109 units at the start of 2021.
The rate of inflation meanwhile stood at 5.7 percent in January 2021 and had increased to peak at 9.6 percent in October 2022 before receding marginally to 9.1 percent last month.
Sidian Bank reported a net income of Sh390.2 million in the nine months ended September 2022, up from Sh369.4 million the year before.
At the time the parties opened talks, the bank was already on the path to recovery after suffering sharp losses in 2017 and 2018 in the wake of interest rate controls that were introduced in September 2016.
Centum saw Access Bank’s offer as attractive in terms of freeing up cash for other uses rather than making a profit on the Sidian Bank stake on which it had spent a cumulative Sh4.7 billion.
READ: Why we sold Sidian Bank to Nigerian lender at a loss
The Sh4.3 billion offered by Access Bank was however a major premium on the appraised value of the stake of Sh2.7 billion.