Companies

Why Jamii Bora owners missed Co-op payout

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In one of the deals, Coop Bank acquired Jamii Bora whose name changed to Kingdom Bank. FILE PHOTO | NMG

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Summary

  • Co-op Bank had initially moved to buy 100 percent of Jamii Bora’s share capital in what would have seen it compensate the company’s owners in cash.
  • But a lack of agreement on a fair value saw the deal amended to have Jamii Bora’s investors retain a combined minority stake of 10 percent.
  • Co-op Bank, meanwhile, took a controlling 90 per cent equity for Sh1 billion, which has been invested in boosting the small lender’s liquidity position.

Shareholders of Jamii Bora Bank missed a chance to get a cash payout in the sale of the lender to Co-operative Bank #ticker:COOP because the parties could not agree on an acceptable offer price.

Co-op Bank had initially moved to buy 100 percent of Jamii Bora’s share capital in what would have seen it compensate the company’s owners in cash.

But a lack of agreement on a fair value saw the deal amended to have Jamii Bora’s investors retain a combined minority stake of 10 percent.

Co-op Bank, meanwhile, took a controlling 90 per cent equity for Sh1 billion, which has been invested in boosting the small lender’s liquidity position.

“Following discussions between the respective management teams of the company and Jamii Bora…a share purchase transaction structure was deemed to be impractical and unworkable particularly in light of Jamii Bora’s weak equity position and the need to prioritise recapitalisation of the business,” Co-op Bank says in a circular to its shareholders.

Co-op Bank was the second suitor to approach Jamii Bora after the former CBA Group, which in January 2019 offered to buy out shareholders of the small lender for Sh1.4 billion.

CBA subsequently abandoned the proposed deal and proceeded to complete its merger with the former NIC Group to create the NCBA Group.

Former CEOs of Jamii Bora —Timothy Kabiru and Sam Kimani — would have received a combined payout of Sh238 million for their previous 17 per cent stake in the lender if the deal with CBA had been concluded.

Co-op Bank did not conduct new due diligence on Jamii Bora and instead relied on the work that had been done by CBA which heavily discounted the small lender’s assets, sources familiar with the matter said.

Vacant land in Nairobi, for instance, was assigned a forced sale value of zero.

Jamii Bora’s minority shareholders say ceding control to Co-op Bank offers the prospect of turning around the fortunes of the small lender.

“Co-op Bank is supporting Jamii Bora in many ways including through the provision of liquidity,” said one of the significant investors in the lender.

Co-op Bank, on its part, projects that Jamii Bora (since renamed to Kingdom Bank) could return to profitability as early as next year.